With a 7% yield and 4.1 P/E, is this the best passive income stock on the FTSE 350?

Millions of Britons invest for a passive income. While our writer isn’t buying this stock yet, he believes it’s worth keeping a very close eye on.

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Passive income stocks are those that pay shareholders dividends. These stocks essentially provide us with an income in exchange for holding shares in the company, which we can sell at any time. 

By owning these dividend-paying stocks, investors receive a regular income stream, typically paid on a quarterly basis, without needing to actively manage their investments. 

This makes passive income stocks an attractive option for anyone looking to build wealth over time, generate additional income, or achieve financial independence.

Should you invest £1,000 in Ds Smith right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Ds Smith made the list?

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So why not leave our money in a savings account? Well, it’s all about returns. Savings accounts typically offer very low interest rates, often not even keeping pace with inflation. 

Historically, well-chosen dividend stocks have provided substantial returns, far outpacing those of traditional savings accounts.

One stock to keep an eye on

On 29 May, Bank of Georgia (LSE:BGEO) reported a solid Q1. Adjusted profit came in at 369.1m Georgian lari (£107m), up 22.5% on last year.

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But that wasn’t enough to stop the share price from sliding. The country’s currently experiencing some turmoil with the government introducing its controversial ‘foreign agents’ bill.

The bill, which will force individuals to register as a foreign agents if they receive more than 20% of their revenue from overseas, has been widely criticised, with thousands taking to the streets.

Opponents have criticised the bill for attempting to punish and stigmatise people and organisations receiving funding from overseas.

Not only does it contribute to the polarisation of politics in Georgia — between the business-friendly Georgian Dream and the more nationalist UNM — but it also threatens the country’s eventual accession to the European Union.

In short, investors like stability, and Georgia isn’t offering that at the moment. I sold my shares in Bank of Georgia last year — perhaps prematurely — with a turbulent 2024 in mind.

The country also heads to the polls in October.

An excellent business

Despite a turbulent year politically, the Bank of Georgia is currently trading at 4.1 times 2023’s earnings, 3.4 times projected earnings for 2024, 3.1 times earnings for 2025, and 2.8 times earnings for 2026. 

It’s a phenomenally undervalued stock, purely based on these metrics. Even unloved UK banks tend to trade with higher multiples. US banks like JPMorgan are around three to four times more expensive on a price-to-earnings basis.

What’s more, the dividend yield’s an impressive 7%. Projections for 2025 show the dividend yield rising to 8% and 8.2% for 2026.

Clearly, these are very attractive numbers. There are very few FTSE 350 stocks with a 7% dividend yield that’s expected to continue growing earnings and dividend payments at such a pace.

The issue is, of course, politics. I’m not convinced there are any really good political outcomes in the next six months. Although Georgia has been one of Europe’s fastest growing economies, with political and potentially economic stability in question the share price could fall further.

I believe it could be one of the best passive income stocks around, and that investors should keep a close eye on it. It could be a real winner in the long run.

Should you buy Ds Smith shares today?

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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.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. James Fox has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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