My favourite passive income company to buy in 2024

There are plenty of ways to build a passive income, but dividend stocks are one of my favourites. Here’s one I think I’ll be investing in this year.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

As we sail into the last few months of 2024, dividend-hungry investors are naturally on the prowl for companies with lucrative yields. Enter Aviva (LSE:AV.), the insurance titan that constantly turns heads with its mouth-watering 7% dividend yield. But is this FTSE 100 stalwart the one to watch for passive-income seekers? Let’s dive in and see if the company is as rock-solid as its 328-year heritage suggests.

The dividend

Firstly, let’s address the elephant in the room: that eye-popping 7% yield. In a world where many high street savings accounts are still offering peanuts, the company’s dividend looks like a veritable feast. But as any seasoned investor knows, if something looks too good to be true, it usually is. So, is Aviva’s dividend a mirage or an oasis?

The good news is that the firm’s financials are looking increasingly robust. The company swung back to profitability in 2023 after some challenging years, and analysts are forecasting earnings growth of 9% annually. This bodes well for the sustainability of that impressive dividend.

Should you invest £1,000 in Greggs Plc 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 Greggs Plc made the list?

See the 6 stocks

Undervalued?

But for me, here’s where it gets really interesting. The shares are currently trading at a whopping 42% discount to their estimated fair value, based on discounted cash flow (DCF) calculations. Although such returns are far from guaranteed, this gap suggests the market might be seriously undervaluing the future earnings potential, especially considering the company’s recent cost-cutting measures and restructuring initiatives.

The shares have already shown some zip, climbing 18% over the past year and handily outperforming competition in the wider insurance sector, which actually declined by an average of 10% in the same period. This could be a sign that larger players in the market are starting to consider the company’s potential.

Created with Highcharts 11.4.3Aviva Plc PriceZoom1M3M6MYTD1Y5Y10YALL1 Aug 201931 Aug 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

Risks

Now, let’s address the less impressive elements of the business: that lofty 89% payout ratio. Typically, such a high percentage would set alarm bells ringing, as it leaves little wiggle room if business conditions sour. However, the firm’s strong capital position (with a solvency ratio of 206%) provides a comforting buffer. The company’s diverse business mix across life insurance, general insurance, and asset management also helps spread the risk.

The insurance sector faces numerous difficulties from increased regulation, climate change-related claims, and the ongoing cost-of-living squeeze. But I think management seems well-positioned to weather these storms, with strong branding, market-leading positions, and ongoing digital transformation efforts.

Ticks all my boxes

So, is Aviva my favourite passive income pick for 2024? It certainly ticks a lot of boxes. Although there are plenty of risks, I feel that the combination of a high yield, potentially undervalued share price, and improving business fundamentals makes it an attractive proposition for income-seeking investors willing to accept some short-term volatility. I’ll be adding shares at the next opportunity.

But there are other promising opportunities in the stock market right now. In fact, here are:

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

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.

Gordon Best 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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »