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.

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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 Phoenix Group Holdings 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 Phoenix Group Holdings Plc 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.

Should you invest £1,000 in Phoenix Group Holdings 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 Phoenix Group Holdings Plc 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.

Our best passive income stock ideas

Do you like the idea of dividend income?

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