Passive income is crucial to maintaining your lifestyle after retirement. After all, the Social Security Administration warns that it may not be able to pay out benefits in full after 2035, which underscores the importance of alternative sources of income.
While stocks aren’t necessarily the most stable sources of passive income due to their volatility, dividend-paying stocks can form a solid foundation for a broader passive income portfolio. The key is to identify companies that offer margin of safety And a first class dividend distribution program.
The following two stocks meet these criteria, making them excellent additions to a passive income portfolio. Let’s explore their potential.
Toyota Motor: A Proven Wealth Maker
Toyota Motor Corporation (NYSE:TM) It is a leading global automotive manufacturer, known for its high-quality vehicles and innovative hybrid technology.
Toyota stock is trading at a forward price-to-earnings (P/E) ratio of 8, which is significantly lower than the broader market. For comparison, Standard & Poor’s 500 Toyota shares trade at more than 21 times forward earnings. Toyota’s low valuation provides a cushion in the event of a broader market downturn.
The automaker also pays a respectable dividend yield of 2.19%. To put that into perspective, the average S&P 500 stock pays just 1.35%. On the revenue front, Wall Street expects the company to grow moderately at 3.38% in fiscal 2025. That’s not huge, but it’s decent for a company the size of Toyota.
Toyota’s investment appeal lies in its strong brand, efficient manufacturing operations and leadership in hybrid vehicles, and the company’s conservative approach to electric vehicles could prove wise if the transition is slower than some expect.
Toyota now faces challenges from aggressive competitors focused on electric vehicles and potential shifts in consumer preferences. However, the Japanese auto giant has the financial resources and expertise to adapt quickly if needed.
Pfizer: Undervalued Pipeline, Very High Return
Pfizer (NYSE: PFE) Pfizer is a pharmaceutical giant struggling to gain traction in a post-pandemic world. Despite heavy investments in mergers and acquisitions to bring in several potential blockbuster drugs, Pfizer shares are trading at just 10.9 times forward earnings at current levels.
On the other hand, large-cap pharma stocks are trading on average at about 17 times future earnings (according to the author’s data). What’s worse, their stocks are down about 23% over the past 12 months.
As a direct result of this double-digit decline, Pfizer’s current dividend yield is 5.94%, among the highest in the entire healthcare industry. In 2025, Wall Street expects the drugmaker to return to growth, with revenues expected to rise 3.8%. While that’s not exactly high growth, it’s respectable for a drugmaker with a large capitalization and a generous dividend policy.
Pfizer’s investment thesis is centered on its undervalued pipeline of new oncology drugs, strong cash flows, and attractive dividend program. The company’s sheer scale and proven research capabilities provide a comfortable margin of safety for long-term investors.
However, expiring patents and potential drug pricing reforms could weigh on earnings to some extent over the next decade. These challenges underscore the importance of Pfizer’s ongoing efforts to revamp its product lines and diversify its revenue streams.
Key points learned
Both of these companies offer attractive dividend yields and long-term capital appreciation potential. Both Toyota and Pfizer have strong core businesses, established market positions, and the financial resources to navigate industry challenges.
So for investors looking to build a passive income portfolio with a focus on value and stability, these two leading stocks are worth serious consideration. After all, the odds of either of these industry giants going extinct over the next two decades are essentially zero.
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George Pudwell The Motley Fool has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has Disclosure Policy.
2 Cheap Passive Income Stocks You Can Buy Now Originally posted by The Motley Fool