2 Cheap Passive Income Stocks to Buy Now

Passive income is essential to maintaining your retirement lifestyle. After all, the Social Security Administration warns that it may not be able to pay benefits in full after 2035, emphasizing the importance of alternative sources of income.

While stocks aren’t necessarily the most stable sources of passive income due to their volatility, dividend-paying stocks can be 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.

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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 (TM 0.56%) is a global leader in automobile manufacturing, known for its very 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, S&P 500 trades at over 21 times forward earnings. Toyota’s low valuation provides a margin of safety in the event of a market downturn.

The automaker also pays a respectable dividend yield of 2.19%. To put that into context, the average stock listed on the S&P 500 pays a yield of just 1.35%. On the revenue side, Wall Street expects the company to post moderate 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 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 faces challenges from aggressive competitors focused on electric vehicles 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 skyrocketing returns

Pfizer (PFE 1.77%) is a pharmaceutical giant that has struggled to gain traction in a post-pandemic world. Despite significant M&A investments to bring in numerous potential hits, Pfizer stock trades at just 10.9 times forward earnings at current levels.

On the other hand, the average large-cap pharma stock trades at about 17 times forward earnings (according to the author’s own data). Worse, its stock is down nearly 23% over the past 12 months.

As a direct result of this double-digit decline, Pfizer’s dividend yield currently stands at an astounding 5.94%, among the highest in the entire healthcare sector. In 2025, Wall Street expects the drugmaker to return to top-line growth, with revenue expected to rise 3.8%. While that’s not huge growth, it’s respectable for a large-cap pharmaceutical company with a generous dividend policy.

The investment thesis for Pfizer focuses on its underappreciated pipeline of new oncology 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, upcoming patent expirations and potential drug pricing reforms could impact profits to some extent over the next decade. These challenges underscore the importance of Pfizer’s ongoing efforts to renew its pipeline and diversify its revenue streams.

Key recommendations

These two value stocks offer attractive dividend yields and the potential for long-term capital appreciation. Toyota and Pfizer both possess strong core businesses, well-established market positions and the financial resources to meet industry challenges.

So for investors looking to build a passive income portfolio with a focus on value and stability, these two top stocks deserve serious consideration. After all, the chances of any of these industry titans disappearing in the next two decades is virtually zero.