2 powerful passive income stocks investors should consider snapping up

Building a passive income stream via dividend-paying stocks is possible, according to our writer, who details two picks to take a look at.

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When aiming to build a passive income stream, I reckon it’s crucial to identify stocks that could continue to boost earnings and cash flow for years to come. However, it’s worth remembering that dividends are never guaranteed.

Two stocks that fit the bill in my view are Greggs (LSE: GRG), and Aviva (LSE: AV.).

Here’s why I think savvy investors looking for consistent dividends should consider buying some shares in these picks.

Greggs

Sausage-roll specialist Greggs may not stand out as an obvious dividend stock to many. However, it’s hard to ignore the firm’s growth story, continued soaring demand, wide presence, and market share.

From a fundamentals view, a dividend yield of 3.6% today isn’t the highest. However, I reckon it’s more important to look at tomorrow’s potential as well. The fact Greggs is growing at an unprecedented rate, and always looking to build on its 2,500-strong locations, is a tell-tale sign that growth is still on the cards.

As well as this, the business has a good track record of performance, including growing sales, revenue, and profit consistently for a number of years now. However, I’m smart enough to understand that the past isn’t a guarantee of the future.

Despite being bullish towards the stock, there are risks that could derail the business. As a purveyor of cheap foods, margins and profitability could come under threat. Potential pitfalls include rising costs, as well as wage inflation. The former could lead management to raise prices, which could hurt demand and performance.

Overall Greggs looks like a great dividend stock to me, with excellent future prospects. I’d buy some shares as soon as I have some investable cash personally.

Aviva

The business provides pensions, health protection, life insurance, and wealth management across the UK, along with operations in Canada too. A changing demographic could boost future earnings and returns, in my view.

From a bullish view, Aviva’s excellent market share and wide presence are a real plus-point. For example, as one of the biggest life insurance providers in the UK with a dominant market share, I’m confident it possesses the footprint and know-how to capitalise on an ageing population. The business could significantly boost earnings, and investor rewards based on this, in my view.

In addition to this, Aviva is taking steps to digitalise its offering and expects this to boost efficiency, and its profitability. An example of this is utilising artificial intelligence (AI) to help process claims.

The obvious risk that could hurt Aviva for me is the fierce competition in the financial services sector. As growth is hard to come by due to a saturated marketplace, earnings and returns could be dented.

However, with a 7.5% dividend yield, and the shares looking decent value for money trading on a price-to-earnings ratio of just 12, Aviva shares look a great prospect. I’d also love to buy some shares personally when I’m able to.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended Greggs Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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