How have Aviva shares become a dividend juggernaut? 5 reasons why

Aviva (LSE:AV.) shares are among the best dividend generators on the FTSE 100. Considering the huge number of high-yield stocks and dividend growers on the UK’s blue-chip index, it’s not a claim I make lightly.

Aviva’s raised dividends in nine of the last 10 years. The only blip came at the start of the decade, a period when half of FTSE-listed companies cut, cancelled or postponed shareholder payouts due to the pandemic:

Even after 2019’s blip, ordinary dividends here have risen at a robust annual average rate of 5.9%. Aviva’s also paid special dividends in the period. All this means that Aviva’s dividend yield‘s averaged a stunning 6.6% during the past decade.

It leaves the FTSE 100 long-term average of 3%-4% firmly in the dust.

But past performance isn’t always a reliable guide to future returns. So investors today need to ask themselves two important questions: what’s made Aviva such a dividend powerhouse, and can it keep delivering impressive passive income streams?

Five reasons why

Any high-quality dividend stock requires durable cash flows. And Aviva has that in spades. Its gigantic general insurance provides recurring premium income it can distribute to shareholders. Premiums are less predictable for its life and health units, though so far they have remained relatively stable.

Over the last decade, the company’s also scaled back its geographic footprint. This has had two major benefits for dividends: exiting less profitable overseas operations has freed up cash, while capital allocation has also improved.

Significant restructuring has also seen it focus more on capital-light businesses. The result? A more robust balance sheet — Aviva’s Solvency II capital ratio is a formidable 180% — and less cash is needed to reinvest in the business. Encouragingly, the firm’s targeting three-quarters of earnings from capital-light operations by 2028.

Finally, Aviva is benefitting from structural tailwinds that are driving profits and dividends steadily higher. Rising interest in financial planning is driving business at its wealth unit. And an ageing population means demand for its retirement products is growing sharply.

So what next?

Aviva’s profits could come under pressure if inflationary pressures continue to build. Weakness in the UK economy is another threat that could persist beyond 2026. Both have the potential to hit demand for its discretionary financial products.

But this isn’t likely to derail the company’s progressive dividend policy, according to City brokers. Payouts of 41.7p and 44.6p are forecast for this year and next respectively. The result? Juicy dividend yields of 6.7% and 7.1% respectively.

I believe Aviva shares can deliver on these bright projections for the reasons I’ve discussed and are worth considering. And looking longer term, I’m optimistic strong growth in the broader financial services market will drive dividends consistently higher.

Should you invest £5,000 in Aviva Plc right now?

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And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Aviva Plc made the list?

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Royston Wild owns shares in Aviva.

The post How have Aviva shares become a dividend juggernaut? 5 reasons why appeared first on The Twelfth Magpie.

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