Trying 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 greater from right here. So, ought to I make investments?
Promising dividend outlook
Let me begin by explaining why I’m upbeat about what may occur to the payout. In spite of everything, it’s just some years since we noticed an Aviva dividend minimize (a reminder that no payout is ever assured to final).
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There are a few methods one may take 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 properly, then in some unspecified time in the future they fall once more throughout the trade and earnings shrink.
One other evaluation is that Aviva has traditionally been a ragbag of various companies, however beneath present administration has grow to be extra focussed and has now put its dividend on a extra sustainable footing than was once 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 in regards to the enterprise outlook for the insurer, from its giant buyer base, robust place within the UK market, and model to its confirmed underwriting capabilities.
The dividend grew by 7.7% final yr. The yield is already 7%. So if the dividend progress fee can proceed at its present stage, the potential yield a few years from now will probably be 8% and inside 5 years, the FTSE 100 share will probably 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 help it.
Typically when wanting on the sustainability of a dividend, I take a look at a agency’s free money move.
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 move 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 yr, 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 may very well be, for instance, 5% — however because the buyback reduces the variety of shares, that might imply the next per share progress within the payout.
If I had spare money to speculate, the potential of a rising Aviva dividend would make me wish to add this earnings share to my portfolio.
