My favorite FTSE 100 stock for passive income right now

Investing in passive income is my preferred way to build wealth over time. FTSE100 It’s full of businesses offering dividend yields above 5%, but there’s one standout stock that I’m really excited about today.

Increasing dividends

Insurance giant in H1 results in August Aviva (LSE: AV.) increased its interim dividend by 7% to 11.9 pence per share (DPS). The total payout in 2024 is forecast to be 35.5p, representing a 6.1% increase on 2023.

It paid out a total of £906 million in dividends last year and continues to lead mid-single digit growth in the cash cost of dividends. It’s little surprise that analysts predict the dividend will rise to 40.9p by 2026. increased efficiency 8.5% meaty.

Moreover, it had bought back 300 million pounds of its own shares at the beginning of the year.

Structural growth opportunities

Supporting future shareholder returns is a driver of growth across all markets. This includes workplace pensions, of which it is the number one provider.

Today, fewer than four in 10 people save enough for retirement. There is also a growing ‘advice gap’ when it comes to retirement savings.

Saving for retirement today is much more complicated than in past generations. One of the main reasons for this is the move from Defined Benefit (DB) to Defined Contribution (DC) pension plans. The effect of this is to transfer risk from employers to employees.

The Financial Conduct Authority (FCA) recently published its Advice Guidance Boundary Review. The report paints a picture of a large portion of the population sleepwalking into retirement and turning to inadequate savings.

Two alarming facts stood out to me. First, the vast majority of employees continue to invest in default funds chosen by their employers throughout the life of the savings product. Second, too many consumers are withdrawing from their retirement funds at an unsustainable rate.

I expect the retirement savings market to improve in the coming years. In fact, it will have to do so with the aging population. But with the market expected to triple to £5 trillion in the next 10 years, Aviva will be a major beneficiary.

Key risks

Like all insurance companies, Aviva invests the premiums and fees it receives in various financial assets.

Therefore, it needs to manage three main groups of risks: credit risk, liquidity risk and market risk. The global financial crisis in 2008 and the infamous Liz Truss budget in 2022 show how unpredictable ‘black swan’ events can destroy balance sheets.

The global economy has witnessed 40-year high inflation and record interest rate increases in the last three years. This led to a cost-of-living crisis and ballooning government deficits. It is certain that insurance stocks will take a big hit if there is a recession in 2025.

I invest despite these risks long term horizon. Over the past few years, under Amanda Blanc’s leadership, the business has completed its own transformation. It has divested itself of many underperforming assets and is now tightly focused on the UK, Ireland and Canada.

Over the past few weeks, the stock has seen a small pullback. Accordingly, I took the opportunity to increase my savings.