When I look at the London Stock Exchange today, what I see above all is a potential gold mine for passive income.

The Footsie is full of companies that generate a lot of money. And for some reason, they are often valued much lower in the market than comparable US-listed stocks.

Some great stocks with high yields have risen in price over the past year. And that means they’re no longer as great a bargain as they might have been a year ago.

But what if a stock is only very cheap today and not incredibly cheap last year? In my opinion, that’s still a good reason to think about buying it.

Long-running

Today I’m looking at one of my best long-term holdings. It is the largest multi-line insurance company in the UK, Aviva (LSE: AV.).

And just look at the chart below to see how the stock has recovered over the past 12 months.

But even after this ride, the forecast dividend yield is still 6.8%.

Even if the share price does not increase by another cent, this dividend alone should be enough to match the long-term annual return of the British stock market.

This brings us to the first risk we have to take when making such an investment. Unlike Cash ISA interest, stock dividends are not guaranteed.

If something bad were to happen, the 6.8% return we were hoping for could evaporate. Remember the financial crash of 2008 and then the pandemic crash of 2020? We won’t forget them anytime soon.

Already in the clear?

Although the financial sector has made great progress this year, the British economy is far from out of the woods. Interest rates are still high and inflation rose slightly to 2.2% in July.

Aviva is also in a volatile, cyclical business, so I definitely expect ups and downs over the years, more so than the market in general.

But I have been following the insurance sector for decades now, buying and holding stocks. In my opinion, it may be one of the best businesses for generating long-term passive income. But investors must sometimes expect short-term dry spells.

For anyone with a similar mindset to me, I think Aviva is really worth considering.

How much?

So we have a dividend yield of 6.8%. And I want to make £1,000 a year. To do that I would need a pot of £14,700. At the current share price that’s 2,941 Aviva shares.

I don’t have that many yet, but I’m getting there. And if I continue to reinvest the dividends I receive each year from this healthy return in new shares, I’m probably not far off.

Well, £1,000 a year isn’t much. But it’s just one stock in my passive income portfolio. To deal with potential future problems in the industry, I place a lot of emphasis on diversification.

The story continues

And I don’t need so many different stocks that earn me £1,000 a year to add a nice sum to my pension plan.

The post I’d buy 2,941 shares of this FTSE 100 for £1,000 a year in passive income appeared first on The Motley Fool UK.

Further reading

Alan Oscroft owns shares in Aviva Plc. The Motley Fool UK does not own any of the stocks mentioned. The views expressed in this article on the companies mentioned in this article are those of the author and as such 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 broad range of insights makes us better investors.

Motley Fool UK 2024