One of my main investment goals is to build a stock portfolio that provides a permanent passive income stream. By focusing on quality companies with reliable dividends, I hope to continue to have growing income for many years after I stop working full-time.

If my investments do really well, I may even be able to retire early, although there is no guarantee. And one company I would add to my dividend portfolio for my journey is FTSE100 bank Lloyds.

Safe but boring?

This leading company is the UK’s largest mortgage lender and its business model is based on taking deposits and lending them to consumers and businesses.

I like the simplicity of Lloyds compared to other UK banks. It operates only in the UK and stays away from investment banking where profits can be less predictable.

The reality, however, is that big banks have not always been good investments. While tighter regulation has made UK banks safer since 2008, they have also become less profitable.

All in all, I think there are attractive earnings opportunities elsewhere in the FTSE 100.

An attractive dividend yield of 7%

A high-yield stock on my radar is the insurance group Aviva (LSE: AV.) Shares in this £13 billion group currently offer a dividend yield of 7%, which could make a useful contribution to my income goals.

The company’s forecast assumes an increase in the cash cost of the dividend by “mid-single-digit range” percent per year. According to the latest broker forecasts, City analysts expect Aviva’s dividend to grow by at least 7% annually between 2024 and 2026.

Based on these estimates, the return on an investment in Aviva shares today could rise to 8.3% in 2026. That’s tempting.

What should I be worried about?

Admittedly, Aviva’s dividend history is not perfect. Under previous management, the company had to cut its payout three times in the last 20 years, most recently in 2019.

Like banking, insurance is a highly regulated business with complex accounting. For a private investor like me, it can be difficult to spot problems in advance. On the other hand, it is a business that is closely monitored by experts in the City and is a much simpler business today than it was a few years ago.

Since taking office in 2020, CEO Amanda Blanc has sold many of Aviva’s overseas operations, streamlining the business to focus on market-leading operations in the UK, Canada and Ireland, and improving profitability.

Reliable forecasts

A final plus point for me is that Blanc has consistently met the financial targets she set for the company. Debt has been reduced in line with her previous forecast. The dividend is increasing as expected. Operating profit has also increased.

The story continues

I place a lot of importance on companies delivering on their promises. In my experience, this is one of the best ways to assess the quality of a management team. Can they deliver on their promises?

Aviva shares currently trade at 10 times forecast 2024 earnings, with a dividend yield of 7%. I think that’s a reasonable valuation. I’d happily add the shares to my portfolio today if I had the money and was looking for a new financial stock to buy.

The post Lloyds isn’t the only FTSE 100 share I’d consider buying for long-term passive income appeared first on The Motley Fool UK.

Further reading

Roland Head does not own any of the stocks mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc. The views expressed on companies mentioned in this article are those of the author and may therefore differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2024