Picture supply: Getty Photographs
Aviva (LSE:AV.) has proved to be one in every of Britain’s most profitable passive revenue shares lately. Since rebasing the dividend in 2013, the FTSE 100 firm has raised shareholder funds yearly, apart from 2019, when the pandemic struck.
With asset gross sales aiding its stability sheet restoration, dividends have typically risen strongly for the reason that mid-2010s, together with a 7% hike in 2024 to 35.7p. What’s extra, the agency’s dividend yields have repeatedly crushed the Footsie’s long-term common of three%-4% over the interval.
However with international financial uncertainty rising, can the monetary providers big maintain its dividend momentum going? And may traders think about shopping for Aviva shares at present?
Strong forecasts
Regardless of the specter of weaker shopper spending in Aviva’s markets, Metropolis analysts expect its earnings to rise by triple-digit percentages in 2025, and by double-digits within the following two years.
This, in flip, results in forecasts of additional strong dividend development over the interval:
| Yr | Dividend per share | Dividend development | Dividend yield |
|---|---|---|---|
| 2025 | 37.87p | 6.1% | 6.4% |
| 2026 | 40.65p | 7.3% | 6.9% |
| 2027 | 43.78p | 7.7% | 7.4% |
For this 12 months, shareholder payouts are tipped to rise at a higher fee than the 1.5%-2% that’s predicted for the broader FTSE 100 index. What’s extra, the tempo of development is anticipated to speed up in 2026 and once more in 2027.
You’ll additionally discover that yields enhance by round a proportion level over the interval. For 2027, too, the dividend yield is round double the newer FTSE ahead common.
But, it’s crucial to do not forget that dividends are by no means assured, and that dealer forecasts are by no means set in stone. And based mostly on dividend protection, there’s a hazard that the passive revenue from Aviva shares could disappoint.
For the following three years, predicted payouts are coated between 1.3 occasions and 1.4 occasions by anticipated earnings. These figures fall method in need of the determine of two and above that sometimes present good safety.
Sturdy dividend cowl is particularly essential for cyclical shares like Aviva throughout unsure occasions. Nonetheless, I’m nonetheless optimistic the enterprise could have the power to pay these projected dividends, even when earnings undershoot forecasts.
As of March, the corporate’s Solvency II ratio was 201%, greater than double the regulatory requirement. And its technique of specializing in capital-light companies will assist it to take care of strong monetary foundations.
Greater than half (56%) of working revenue got here from such operations within the first quarter. This may transfer to 70% if its deliberate acquisition of Direct Line goes forward.
Is it a purchase?
Investing in Aviva isn’t with out danger, because the powerful financial setting might have penalties for the dividend and/or the share worth. However on stability, I feel the potential advantages of proudly owning the inventory outweigh the doable risks.
I actually imagine it might show a profitable inventory to personal over the long run. Demographic modifications throughout its UK, Irish, and Canadian markets could supercharge demand for its retirement, safety, and wealth merchandise.
Given these large dividend yields and undemanding price-to-earnings (P/E) ratio of 11.3 occasions, I feel it’s an incredible FTSE discount to think about.
