Passive income is critical for maintaining your lifestyle in retirement. After all, the Social Security Administration warns it may not be able to pay benefits in full after 2035, underscoring the importance of alternative income sources. While stocks aren’t necessarily the most stable sources of passive income due to their volatility, dividend-paying equities can form a solid basis for a broader passive income portfolio. The key is to identify companies that offer a margin of safety and a top-tier dividend 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 creator
Toyota Motor (NYSE: TM) is a global leader in automobile manufacturing, known for its ultra-high quality vehicles and innovative hybrid technology. Toyota stock trades at a forward price-to-earnings (P/E) ratio of 8, which is significantly lower than the broader market. For comparison, the S&P 500 trades at over 21 times forward earnings. Toyota’s low valuation provides a margin of safety in the event of a marketwide downturn. The automaker also pays a respectable dividend yield of 2.19%. To put this into context, the average stock listed on the S&P 500 pays a mere 1.35% yield. On the revenue front, Wall Street expects the company to deliver moderate growth of 3.38% in fiscal 2025. That’s not explosive growth, but it is decent for a company of Toyota’s size.
Toyota’s investment appeal lies in its strong brand, efficient manufacturing processes, and leadership in hybrid vehicles. The company’s conservative approach to electric vehicles (EVs) may prove prudent if the transition is slower than some anticipate. Now, Toyota does face challenges from aggressive EV-focused competitors and potential shifts in consumer preferences. That said, the Japanese auto-titan has the financial resources and expertise to adapt quickly if needed.
Pfizer: An underappreciated pipeline and a sky-high yield
Pfizer (NYSE: PFE) is a pharmaceutical giant that has struggled to gain traction in a post-pandemic world. Despite significant investments in mergers and acquisitions to bring in numerous potential blockbusters, Pfizer’s shares trade at just 10.9 times forward earnings at current levels. The average large-cap pharma stock, on the other hand, trades at around 17 times forward earnings. Worse still, its stock has fallen by nearly 23% over the past 12 months.
As a direct result of this double-digit downturn, Pfizer’s dividend yield currently stands at an eye-watering 5.94%, among the highest in the entire healthcare sector. In 2025, Wall Street anticipates the drugmaker returning to top-line growth, with revenue projected to rise by 3.8%. While not ultra-high growth, it is respectable for a megacap pharmaceutical company with a generous dividend policy.
The investment thesis for Pfizer centers on its underappreciated pipeline of new oncology drugs, robust cash flow, and attractive dividend program. The company’s enormous scale and proven research capabilities also provide a comfortable margin of safety for long-term investors. However, upcoming patent expirations and potential drug pricing reforms could impact profits to some degree in the next decade. These challenges underscore the importance of Pfizer’s ongoing efforts to replenish its pipeline and diversify its revenue streams.
Key takeaways
These two value stocks offer attractive dividend yields and the potential for long-term capital appreciation. Toyota and Pfizer both possess strong underlying businesses, well-established market positions, and the financial resources to navigate industry challenges. So for investors seeking to build a passive income portfolio with a focus on value and stability, these two blue-chip stocks warrant serious consideration. After all, the odds of either of these industry titans going extinct over the next two decades is essentially zero.
In conclusion, passive income is crucial for securing financial stability in retirement, especially with uncertainties surrounding traditional sources of income like Social Security. Investing in dividend-paying stocks like Toyota Motor and Pfizer can provide a reliable stream of income while also offering the potential for long-term growth. By carefully selecting companies with strong fundamentals and a solid dividend program, investors can build a diversified passive income portfolio that can help support their lifestyle in retirement.
