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The dividend lower at FTSE 100 insurer Aviva (LSE: AV) in 2020 appears a very long time in the past already. It was not the primary time that Aviva had lower its dividend. Nevertheless, since then the agency has been steadily rising its dividend per share.
In 2021, that stood at 22.1p. By final yr it had grown to 35.7p. That’s already spectacular progress. However since then, we have now seen this yr’s interim dividend develop 10% in comparison with final yr’s interim payout. Aviva additionally plans to continue to grow its dividend per share, though after all no dividend is ever assured.
What kind of wealth-building potential may this share provide an investor who takes a long-term method?
The facility of compounding
Aviva’s share value has greater than doubled over the previous 5 years. That in itself has led to vital worth creation for traders who purchased the share on the proper time and held on till now.
That mentioned, 5 years in the past the share value was reeling from the pandemic and uncertainty about its dividend, with the lower introduced in the direction of the top of November 2020.
So regardless of the five-year rise, the Aviva share value remains to be nicely beneath the place it stood earlier than the monetary disaster began to take maintain in 2007 – and solely at round half the extent of its 1998 peak!
What concerning the dividend? In the mean time, Aviva gives a yield of 5.8%. Compounding at that charge for a decade would imply a complete return of round 76%, even when the share value stays flat.
So somebody shopping for 1,000 shares in Aviva right now would spend about £6,380. Compounded at 5.8% for a decade, that must be price round £11,212.
However wait, there’s extra (probably)!
That kind of return would already make me pleased. However that presumes that the dividend stays at right now’s stage.
After all, it may fall, as Aviva has repeatedly demonstrated up to now. The model’s main place within the UK insurance coverage market makes it weak to cost competitors from rivals who need to steal a few of its lunch.
However the previous few years have seen regular will increase. What in the event that they maintain coming? In that case, the worth of the 1,000 shares could possibly be higher than £11,212 after a decade – even with none share value progress.
A confirmed firm with ongoing dividend potential
Actually, I see Aviva as a share that income-focused traders ought to think about.
The agency has a really robust place within the UK insurance coverage market that offers it economies of scale – one thing that this yr’s acquisition of rival Direct Line ought to assist.
Aviva additionally advantages from a confirmed enterprise mannequin. It has demonstrated that because of its robust model, massive buyer base and deep insurance coverage experience, it will possibly generate sizeable spare money.
I count on that to proceed – and such money can be utilized to fund dividends.
