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HomeMarketThe Aviva dividend yield is 7%. I feel it may attain 8%...

The Aviva dividend yield is 7%. I feel it may attain 8% — and even 9%!


Wanting on the annual shareholder payout from insurer Aviva (LSE: AV), I like what I see. In the mean time the Aviva dividend yield is 7%.

I feel it may go increased from right here. So, ought to I make investments?

Promising dividend outlook

Let me begin by explaining why I’m upbeat about what would possibly occur to the payout. In spite of everything, it’s just some years since we noticed an Aviva dividend reduce (a reminder that no payout is ever assured to final).

Created utilizing TradingView

There are a few methods one would possibly have a look at this so far as I’m involved.

One is to say that insurance coverage is a cyclical enterprise – charges go up and underwriters do nicely, then sooner or later they fall once more throughout the business and earnings shrink.

One other evaluation is that Aviva has traditionally been a ragbag of various companies, however below present administration has turn out to be extra focussed and has now put its dividend on a extra sustainable footing than was the case.

Which of those is extra true (as each could also be legitimate), solely time will inform. However I feel there’s a lot to love concerning the enterprise outlook for the insurer, from its massive buyer base, robust place within the UK market, and model to its confirmed underwriting capabilities.

The dividend grew by 7.7% final 12 months. The yield is already 7%. So if the dividend progress fee can proceed at its present degree, the possible yield a few years from now shall be 8% and inside 5 years, the FTSE 100 share shall be yielding a juicy 9%.

Balancing dangers and rewards

Present administration of the corporate strikes me as competent and life like. So, for the Aviva dividend to continue to grow at a powerful clip, the enterprise efficiency might want to assist it.

Typically when trying on the sustainability of a dividend, I have a look at a agency’s free money circulate.

Can that assist right here, although? Have a look at the chart.

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Like plenty of monetary providers companies (particularly insurers), free money circulate doesn’t assist me as a lot because it may. It displays monies coming out and in that don’t essentially illustrate the underlying well being of the corporate.

So I pay extra consideration to how a lot surplus capital Aviva generates, as it may well use that to assist fund its dividend.

Right here, I feel issues look promising. In its full-year outcomes for final 12 months, the corporate introduced a share buyback. It additionally introduced the money value of its dividend is about to continue to grow by mid-single digits every year. That might be, for instance, 5% — however because the buyback reduces the variety of shares, that would imply a better per share progress within the payout.

If I had spare money to speculate, the potential of a rising Aviva dividend would make me need to add this earnings share to my portfolio.


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