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After years of being ignored, UK dividend shares are beginning to seem like unmissable bargains, to my eyes.
Traders have shunned the FTSE 100 as they chase high-flying US tech shares, however that dynamic could possibly be about to shift. With rates of interest anticipated to fall this 12 months and subsequent, high-yielding dividend shares might steadily regain their enchantment.
These days, traders have most well-liked the protection of money and bonds. These have supplied extra enticing returns attributable to rising rates of interest, with little or no capital danger.
Nonetheless, as additional UK rate of interest cuts loom, the yields on these fixed-income investments might shrink, making dividend shares extra compelling.
Aviva shares have outperformed their friends these days
On the identical time, the US inventory market, notably its tech-heavy Nasdaq, has surged to file highs. However as Wall Avenue works out what to make of shock Chinese language AI entrant DeepSeek, which will change. We’ll see. Traders haven’t absolutely absorbed that shock but.
However with S&P 500 valuations stretched, we might see a shift again in direction of unloved and undervalued UK shares. The FTSE 100, with its rollcall of regular dividend payers, might lastly get the popularity it deserves.
FTSE insurers have struggled these days, however there’s one notable exception. Insurer and asset supervisor Aviva (LSE: AV). Its shares have climbed 18% during the last 12 months. Over 5 years, they’re up greater than 30% (with dividends on prime). Regardless of these positive aspects, they give the impression of being fairly valued.
The Aviva share worth trades at a price-to-earnings (P/E) ratio of lower than 14, barely under the FTSE 100 common of round 15. That’s not grime low cost, but it surely’s fairly good for a corporation with a powerful market place and stable financials.
It at present gives a trailing yield of 6.5%, however analysts forecast this can rise to six.9% in 2025 and a formidable 7.4% in 2026.
Naturally, there are dangers. Forecast dividend cowl’s skinny at simply 1.4. Whereas not dangerously low, it I’d like an even bigger cushion in opposition to potential earnings fluctuations. Aviva’s monetary power reassures me. Its Solvency II shareholder cowl ratio stands at a sturdy 195%, reflecting a powerful steadiness sheet and capital place.
Value contemplating as a long-term maintain?
The corporate’s Q3 2024 outcomes, printed on 14 November, confirmed common insurance coverage premiums surging 15% to £9.1bn. Wealth internet flows additionally elevated 21% to £7.7bn, reflecting sturdy demand for Aviva’s funding merchandise.
Importantly, the corporate’s working revenue’s on observe to hit £2bn in 2026, reinforcing its long-term progress potential.
The share worth might retreat within the quick time period. Aviva operates in a mature and aggressive market at a troublesome time. Shoppers are struggling and this might hit insurance coverage premiums. Inventory market volatility might punish its asset administration arm.
So I wouldn’t count on wonders. Any investor contemplating Aviva ought to solely purchase with the goal of holding for years, and ideally many years, to offer their dividends time to compound and develop.
I don’t maintain Aviva and received’t purchase it. That’s purely as a result of I have already got a giant stake in two FTSE 100 rivals, Authorized & Basic Group and Phoenix Group Holdings. Each have trailed Aviva badly since I purchased them. I’m crossing my fingers they’ll put that proper.