The UK market may be considered an absolute treasure trove when it comes to companies throwing off passive income. But not all dividend stocks are created equal.

Today, I’m looking at what I consider to be one of the better examples to consider buying.

Market-beater

Climbing almost 80% in value in the last five years, insurance giant Aviva (LSE: AV.] has easily outperformed the UK’s top index (+53%, as I type).

Much of this can be down to a successful turnaround under the stewardship of CEO Amanda Blanc. Since she arrived in 2020, the company’s become far more streamlined and focused on its home market. In addition to profits rebounding, the market has welcomed developments such as the acquisition of Direct Line.

But the gap between the index return and that of Aviva shares is even greater when the latter’s dividend stream is taken into account.

Aviva shares chuck out passive income

Analysts have the company returning 41.6p per share in FY26. Using the current share price, this converts to a dividend yield of 5.9%. Put another way, someone buying £10,000 worth of stock would be in line to generate £590 or so in passive income this year.

Few stocks in the FTSE 100 would return more, at least as things stand.

Look beyond the high yield

There are a few other things I check for when it comes to analysing this sort of stock. The first of these is that the dividend’s regularly hiked. As well as keeping inflation in check, this can also be seen as a sign that a business is performing well.

Aviva has a great record on this front, at least since it was restructured. Although we won’t know for sure until it happens, analysts are anticipating another 6% uplift this year.

The second thing I look at is the extent to which the total distribution is expected to be covered by profit. Any deficit and a company will need to tap its cash reserves. That’s not necessarily disastrous, but it isn’t something that can continue forever.

My data provider suggests that Aviva’s cash returns this year will be covered almost 1.4 times by profit. That’s good enough for now.

No guarantees

As much as I consider Aviva to be a great option to think about, it’s still important to take a balanced view. Stocks with high yields might look very attractive at face value, but plenty have been forced to cut their dividends or slash them completely (including this company in 2019).

Given the sector in which it operates, it’s not beyond the realms of possibility that Aviva could suffer in the event of a nasty wobble in the UK economy and a drop in demand for financial products. Even if this doesn’t happen, the firm will always face intense competition from rivals, particularly when it comes to attracting and retaining motor and home insurance customers.

At 12 times forecast earnings however, the stock’s still keenly priced among those in its sector. Unless investor expectations have become unrealistic, this valuation could mean that we see more positive momentum in the price when half-year numbers are announced on 14 August.

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Paul Summers has no position in any of the shares mentioned