Several stocks in the FTSE 100 index are great for generating passive income from shareholder dividends.
It’s hard to choose between some of these high-yielding shares. However, one Footsie company just delivered a great set of full-year results, and it’s at the top of my list of candidates now.
This business is flying!
It’s Aviva (LSE: AV), the UK-based insurance, wealth, and retirement business.
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The results report hit the newswires on 7 March and covers the firm’s performance during 2023. Operating profit rose 9%, and the business saw “continued growth momentum”.
To reward shareholders, the directors announced a share buyback programme worth £300m, raised the dividend for the year by 8%, and upgraded guidance for future dividends. Looking ahead, chief executive Amanda Blanc expressed confidence in the outlook for 2024.
Aviva is financially strong., Blanc said. The company is trading consistently well, and the firm’s prospects have “never been better”.
City analysts appear to agree. They’ve pencilled in an uplift in earnings over 20% for 2024 and expect a further single-digit-percentage increase in the dividend.
All that good news makes me optimistic that Aviva can continue to be a decent source of passive income for me in the years ahead.
A perky share price
The stock responded well to the report and has been on the rise. There’s some risk for new shareholders if it keeps going up and the valuation increases. Such a bullish move can go too far and then reverse later.
Nevertheless, as I write on 7 March, the share price stands near 462p, and the valuation looks undemanding to me given the robust news flowing from the company.
At the current level, the forward-looking dividend yield for 2024 is still well above 7%. I see that as a good starting point for a passive income stream. But on top of that, if the company keeps growing its earnings, there’s potential for the dividend to increase further in the coming years.
A thousand pounds a year in passive income
With the shares near 462p, I’d need around 2,909 to generate £1,000 a year in passive income. That would cost me about £13,440.
So it’s a fair-sized commitment and not something I can afford every day! But I can buy the stock monthly and work towards the full amount over time.
For example, buying 81 Aviva shares a month would cost me just over £374 with the share price where it is today. Over three years, I could end up with the 2,909 shares desired.
Of course, the share price probably won’t stay where it is over that amount of time. But drip-feeding my money every month can be a good idea with stocks. The process is called pound-cost averaging and can help iron out ups and downs.
Nevertheless, Aviva’s ongoing business performance and dividend payments aren’t guaranteed. If the firm’s operations run into a downturn, it’s possible to lose money on the stock. That applies even when pound-cost averaging.
On balance, with spare cash to invest, I’d embrace the risks and aim for long-term gains by adding the stock to my diversified portfolio.
