My favourite passive income stock’s as cheap as chips and I’d consider buying it now

This stock’s dividend yield is a handy 7.5%, which is ideal income for passive income shareholders to collect while getting on with life.

| 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.

Shot of a senior man drinking coffee and looking thoughtfully out of a window

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.

A passive approach to stock investing can work well while collecting income from dividends. Let’s face it, there’s more to life than obsessing over company reports and share-price charts — and we don’t have to.

As long as DIY investors are prepared to do some initial research when choosing businesses and stocks, a diversified portfolio of holdings may serve well over the long term.

A programme of dividend reinvestment

Nevertheless, great investors like billionaire Warren Buffett have beaten the returns of the general stock market by dedicating their lives to the game.

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

See the 6 stocks

By his own records, Buffett’s long-term compounded annual gain is running at just under 20%. But America’s S&P 500 index has delivered a compounded annual gain of just over 10% over the same decades since the 1960s.

For many investors, gains compounding at around 10% a year on average could build to a tidy sum over years and decades. But to aim for that kind of progress, I reckon it’s important to plough those passive dividend income gains back into stocks along the way to hopefully keep the pot growing.

But what should we buy? Well, my favourite passive income stock right now is Aviva (LSE: AV.), the UK-based insurance, wealth, and retirement business operating in the wider financial sector.

As I write (29 August), the share price is in the ballpark of 506p. That puts the forward-looking dividend yield for 2025 at just over 7.5% and, to me, the valuation makes the stock look cheap.

Created with Highcharts 11.4.3Aviva Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

There aren’t many bank accounts that will give me interest as high as that. So is Aviva a no-brainer? No it isn’t. Stocks and shares are not as safe as bank accounts. There’s always risk involved when committing money to shares.

For example, company directors have the power to trim or stop dividends at will. And they often do if the underlying business hits a setback. On top of that, share prices can go down as well as up. So the money we invest in shares can rise and fall in value.

The dividend looks set to rise further

Another risk for Aviva is that its operations have a fair amount of sensitivity to general economic cycles. So if we see another half-decent recession or a global economic slowdown, its possible — likely even — that Aviva’s profits could take a dive.

If that happens, the share price will likely move lower and, as mentioned, the directors may even reduce the dividends.

But I wouldn’t write-off Aviva just because of those risks. I think the company’s worth deeper research and consideration right now. It may be worth weighing up as one potential holding in a portfolio of several stocks.

Since 2019, the dividend’s risen a little every year, and City analysts expect further increases in 2024 and 2025. A strong dividend record like that speaks volumes about the strength of underlying operations and the directors’ positive view about the outlook for the business.

Aviva’s trading well and the valuation looks modest. That’s why it’s one of my favourite passive income stocks to consider buying now.

But what does the head of The Motley Fool’s investing team think?

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

See the 6 stocks

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.

Kevin Godbold 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.

More on Investing Articles

Investing Articles

£20K invested in Tesla stock last April is now worth…

Despite all the bad headlines lately, Tesla stock has put in a storming performance over a 12-month timeframe. Is this…

Read more »

Investing Articles

If a 40 year old invests £600 a month in a SIPP, here’s what they could have by retirement

With no retirement savings at 40, an investor could put £600 a month into a SIPP and grow its value…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Why hasn’t its 9.9% yield boosted the Phoenix share price?

Phoenix Group has a dividend close to double digits, but saw a weak share price performance in recent years. Christopher…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

With average 10% yields, these mid-cap FTSE shares could supercharge a passive income portfolio

Some of the best passive income gems can be found on the UK's smaller indexes like the FTSE 250 and…

Read more »

A coin being dropped into a piggy bank
Investing Articles

As the Barclays share price tanks 19% in 2 days, is this a great buying opportunity?

As a trade war sends the Barclays share price into a tailspin, Andrew Mackie steps back to look at the…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Fundsmith Equity still a good choice for a Stocks and Shares ISA in 2025?

Many Britons hold the Fundsmith Equity fund in their Stocks and Shares ISAs. Is this still a good move? Edward…

Read more »

Investing Articles

Nvidia stock is down 24% this year. Time to buy the dip?

Christopher Ruane has been eyeing Nvidia stock as a potential addition to his portfolio for a while. Is a recent…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Down 25% since January, this resilient dividend stock’s catching my eye

Maintaining the UK’s rail, water, and energy infrastructure isn’t the most exciting business. But it has made this a solid…

Read more »