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When I look at the London stock market today, what I see primarily is a potential goldmine of passive income.
The Footsie is full of companies generating large amounts of cash and for some reason the market tends to have much lower valuations than similar stocks listed in the US.
Some high-yield stocks have risen in price over the past year, meaning they are not as good as they would have been a year ago.
But if a stock is dirt cheap today instead of ridiculously cheap last year, that's still a good reason to consider buying it, in my opinion.
Long-term favorite
Today I am going to look at one of my top long-term investments. 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 in value over the past 12 months.
However, even after that hike, the expected dividend yield is still 6.8%.
Even if the share price doesn't gain another penny, that dividend alone should be enough to get close to the long-term annual returns of the UK stock market.
Now, this poses the first risk we must face with an investment like this. Unlike the interest from a cash ISA, dividends from shares are not guaranteed.
If something bad were to happen, that expected 6.8% return could evaporate. Remember the financial crisis of 2008 and then the pandemic crisis of 2020? We won't forget them in a hurry.
Is it clear now?
Although the financial sector has made great strides this year, the UK economy is not out of the woods. Interest rates remain high and inflation rose slightly in July to 2.2%.
Aviva is also in a volatile and cyclical business, so I would certainly expect ups and downs over the years, more so than the broader market.
But I have followed the insurance industry for decades and have bought and held stocks. In my opinion, it is possibly one of the best businesses to invest in for long-term passive income. But investors should sometimes expect short-term dry spells.
For anyone with a similar perspective to mine, I really think Aviva is worth considering.
How much does it cost?
So we have a dividend yield of 6.8% and I want to pocket £1,000 a year. For that, I would need a fund of £14,700. At the share price at the time of writing, that's 2,941 Aviva shares.
I don't have many yet, but I'm getting close. And if I keep reinvesting the dividends I get from that substantial return each year into new stocks, I don't think I'll be far off.
Now, £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 sector, I make diversification a key priority.
And I won't need so many different stocks earning £1,000 a year to add a tidy little sum to my pension plans.
