In 2024, I’ve got my sights set on stocks that can make me a decent passive income on the side. Aviva (LSE:AV) shares look like they fit the bill. With a mouth-watering dividend yield of 8.4%, it might be time for investors like me to take a deeper look into this stock.
The path to passive income
As I’m writing this, Aviva shares are currently trading for £4.30, yielding 8.4% in dividends.
It’s important to keep in mind that dividends aren’t guaranteed, but with an outlay of £33,290.60 (which I appreciate is an extremely large sum of money) on 7,742 of its shares, I can generate £200 of monthly passive income.
In coming to this amount, I’ve made a rather conservative assumption that the dividends will remain unchanged from the 31p paid out to investors last year.
Aviva’s latest interim dividend of 11.8p is already 8% higher than last year’s 10.3p.
There is also a good chance the final dividend will be higher than last year’s.
Therefore, I might not even need to buy this many shares to generate the same amount of extra income.
Furthermore, if the dividend continues to grow over time, the £200 I receive every month will do likewise.
If I reinvested part or all of the dividend back into the stock, I would increase this amount even further.
The risk I face if I wait too long
I last covered Aviva in mid-November and I noted that its shares had a pretty underwhelming 2023, falling by almost 8% up to that point.
However, since then, its shares have rallied by almost 4%. In fact, since the start of September, the gain has been nearly 15%.
It looks like momentum is on the side of Aviva shares.
Therefore, if I were to invest in its shares, there would be a risk that the cost for me to obtain these future dividends would rise if I waited too long.
Short-term risks
Like most firms in the financial services sector, Aviva is heavily influenced by the wider economy.
With the UK economy wobbling throughout the last year, shares of the insurance giant could experience volatility.
I’m also concerned about the pessimism surrounding the financial sector, which has created downward pressure for firms in this sphere for a while now.
For example, Aviva shares are yet to recover from the great recession. Its shares are still down roughly 60% from the start of 2007.
However, as a Foolish investor, I think about the long term.
The UK economy is expected to resume growth this year. KPMG predicts GDP growth of 0.5% in 2024. Although this sounds a bit timid, it expects higher growth from 2025 of 1%.
Furthermore, the ageing UK population could also end up being advantageous for Aviva. This is because an elderly population is likely to make more use of the kind of products that it offers, such as retirement and wealth services.
This could be a catalyst for continued strong growth ahead.
Now what?
With a price-to-earnings (P/E) ratio of just 10.7, Aviva shares are not too expensive.
This looks very cheap when you factor in the dividend yield.
I’m also optimistic about its future growth prospects.
Therefore, I’d buy some of its shares today, if I had the spare cash to do so.
The post I’d buy 7,742 shares of this stock to generate £200 of monthly passive income appeared first on The Motley Fool UK.
We think earning passive income has never been easier
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
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
Could this 7%+ yield keep growing? Here’s my 2024 Aviva dividend forecast
Is this one of the best income stocks on the FTSE 100?
Investing a £20k ISA in Aviva shares could give me income of £1,600 a year
2 dirt cheap dividend stocks I’d buy for passive income in 2024!
Here’s how much I’d need to invest in Aviva shares for £100 in monthly passive income
Muhammad Cheema 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.
