Investing in FTSE 100 stocks has proven to be a great way to make a passive income. Dividends from these shares can go up and down according to economic and industry conditions. But over the long term, their large operations and financial strength can make them excellent ways to make a second income.
Today the Footsie index’s average yield sits just short of 3.8%. But I have a plan to make a market-beating dividend income and am looking at better-paying stocks to buy.
Here’s one dividend stock I think could be a top one for passive income in the New Year.
A life insurance giant
Financial services company Aviva (LSE:AV.) is one of the world’s biggest life insurance companies. With a market capitalisation of £11.7bn, the company holds market-leading positions across the UK, Ireland and Canada.
Admittedly Aviva hasn’t had the best dividend record in recent decades. In fact, annual payouts have been cut several times in response to a weak balance sheet.
However, a programme of asset sales and cost-cutting has transformed the company’s financial fortunes and pushed dividends sharply higher again. The annual payout jumped 41% in 2022, and is tipped to keep growing through to 2026 at least.
Targeting a £1k passive income
Boasting a dividend yield of 8.1% for next year, investors will need to buy just over £12,300 worth of Aviva shares to generate a passive income of £1,000.
Not everyone possesses the funds to make such a significant purchase. However, even individuals with little capital to spend today can make that four-figure second income by steadily investing over time.
At the current price of 427p per share, buying 19 Aviva shares a week — or 82 shares a month (worth £350) — could make me a magnificent £1k annual passive income within the next three years.
Why I bought Aviva shares
At this point I should disclose that I already own this FTSE 100 dividend stock in my investment portfolio. I snapped it up in October as cheap way to boost my dividend income.
The company still looks like a brilliant bargain today. It trades on a forward price-to-earnings (P/E) ratio of 9.4 times, some way below the Footsie average of around 12 times. So I’m considering adding to my Stocks and Shares ISA in the New Year.
Such a low valuation reflects an uncertain trading outlook for financial services providers as the global economy cools. When consumers feel the pinch their appetite to buy protection, retirement and investment products tends to wane.
Yet I’m still expecting more gigantic dividends to come down the line in 2024 and beyond. Aviva has a rock-solid balance sheet it can use to pay shareholders: its Solvency II capital ratio at a mighty 200% as of September.
It also has the financial strength to continue growing profits (and thus dividends) by making further acquisitions. It spent £460m on AIG’s UK protection business in September, and a further £100m last month on Canadian vehicle replacement insurance provider Optiom.
Dividends (and share price growth) can never be guaranteed. But I think Aviva’s in great shape to deliver an impressive passive income next year and beyond.
