Passive income is crucial to maintaining your lifestyle in retirement. After all, the Social Security Administration warns that it may not be able to pay full benefits after 2035, underscoring the importance of alternative sources of income.
Although stocks are not necessarily the most stable sources of passive income due to their volatility, dividend-paying securities can provide a solid foundation for a broader passive income portfolio. The key is to identify companies that offer a margin of safety and a top-notch 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 world-leading automobile manufacturer known for its highest quality vehicles and innovative hybrid technology.
Toyota stock trades at a price-to-earnings ratio (P/E) of 8, which is significantly lower than the broader market. For comparison: S&P500 trades at over 21 times forward earnings. Toyota’s low valuation provides a margin of safety in the event of a market-wide downturn.
The automaker also pays a respectable dividend yield of 2.19%. For comparison, the average stock in the S&P 500 pays a yield of just 1.35%. As for earnings, Wall Street expects the company to deliver modest growth of 3.38% in fiscal 2025. That’s not explosive growth, but it’s decent for a company of Toyota’s size.
Toyota’s appeal as an investor rests on its strong brand, efficient manufacturing processes and leadership in hybrid vehicles. The company’s conservative approach to electric vehicles (EVs) could prove wise if the transition is slower than some expect.
Now Toyota faces challenges from aggressive electric vehicle-focused competitors and potential shifts in consumer preferences. Still, the Japanese auto giant has the financial resources and know-how to adapt quickly if necessary.
Pfizer: An underestimated pipeline and a sky-high return
Pfizer (NYSE: PFE) is a pharmaceutical giant that has struggled to find its footing in a post-pandemic world. Despite investing heavily in mergers and acquisitions to bring numerous potential blockbusters to market, Pfizer shares trade at just 10.9 times forward earnings at current levels.
The average stock of a large-cap pharmaceutical company, by contrast, trades at 17 times forward earnings (according to the author). Worse still, the company’s share price has fallen by almost 23 percent over the past 12 months.
As a direct result of this double-digit decline, Pfizer’s dividend yield currently stands at a staggering 5.94%, making it one of the highest in the entire healthcare sector. In 2025, Wall Street expects the pharmaceutical giant to return to sales growth, with revenue expected to grow by 3.8%. While that’s not extremely high growth, it’s respectable for a mega-pharmaceutical company with a generous dividend policy.
The investment thesis for Pfizer is based on its underappreciated pipeline of new cancer drugs, robust cash flow and attractive dividend program. The company’s enormous size and proven research capabilities also provide a comfortable margin of safety for long-term investors.
However, impending patent expirations and potential drug pricing reforms could impact earnings to some extent over the next decade. These challenges underscore the importance of Pfizer’s ongoing efforts to replenish its pipeline and diversify its revenue streams.
Key findings
These two value stocks offer attractive dividend yields and the potential for long-term value appreciation. Toyota and Pfizer both have strong business models, well-established market positions and the financial resources to overcome industry challenges.
So for investors looking to build a passive income portfolio with a focus on value and stability, these two blue-chip stocks are worth serious consideration. After all, the likelihood of either of these two industry giants going extinct in the next two decades is virtually zero.
Should you invest $1,000 in Toyota Motor now?
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George Budwell holds positions in Pfizer. The Motley Fool holds positions in Pfizer and recommends the company. The Motley Fool has a disclosure policy.
2 Cheap Passive Income Stocks You Can Buy Now was originally published by The Motley Fool
