Insurance firms like Aviva (LSE:AV.) can be great shares to buy for passive income. They’re not without risk, as demand for their services can fall during economic downturns. However, steady premium collection means they can be better dividend payers than many other UK shares.
Created with TradingView
As we can see, the dividend on Aviva shares has risen regularly over the past decade. The only exception was in 2019. Back then, the business took the prudent decision to cut the full-year payout due to Covid-19-related uncertainty.
City analysts believe the company will continue growing dividends over the short-to-medium term at least too. This results in more FTSE 100-beating dividend yields, as the table below shows.
Year
Dividend per share
Dividend growth
Dividend yield
2024
35.40p
6%
7%
2025
38.08p
8%
7.6%
2026
40.80p
7%
8.1%
However, dividends are never guaranteed. And Aviva’s strong dividend history may not necessarily be a reliable guide to future returns.
With this in mind, how realistic do these dividend projections appear? And should I buy this high-yielding stock for my portfolio?
Cash machine
The first thing to look at is how well forecast dividends are covered by expected earnings. This provides a good idea of how much scope a company has to meet broker estimates if profits disappoint.
Unfortunately Aviva doesn’t score well on this metric. For the three years to 2026, dividend cover ranges between 1.3 times and 1.4 times. As an investor, I’d be looking for a reading of 2 times and above.
This clearly isn’t ideal. But in the case of Aviva, I don’t think it’s a dealbreaker. This is because of the strength of its balance sheet.
The financial services giant generates huge amounts of cash that it’s committed to returning to shareholders. Earlier this year it launched a £300m share buyback to dish out some of its excess capital.
Today, Aviva’s Solvency II capital ratio stands at a reassuringly high 205%. And by targeting £1.8bn of own funds generation by 2026, Aviva’s taking steps to boost its financial foundations still further.
A top buy?
Created with TradingView
As I say, Aviva’s been a strong dividend payer in recent years. But its share price is yet to recover to pre-pandemic levels, as the chart above shows.
This underperformance reflects the impact that higher interest rates have had on its operations. Economic weakness in the UK and Ireland haven’t exactly helped matters either.
Would I be better off buying other dividend shares to make an all-round better return? Possibly. But I believe that Aviva’s recent share price recovery could accelerate as interest rate cuts heat up.
I certainly think its shares have considerable upside potential due to rapid demographic changes in its markets. In fact, I think the firm could be one of the Footsie’s biggest beneficiaries of the growing ‘silver economy’, thanks to its broad selection of retirement, insurance and wealth products.
With that strong balance sheet, Aviva has room for more shrewd acquisitions to harness this opportunity.
Given its bright dividend outlook and potential for share price gains, I think this is a top blue-chip share to consider today.
The post 8.1% yield! Here’s the dividend forecast for Aviva shares through to 2026 appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
Inflation recently hit 40-year highs… the ‘cost of living crisis’ rumbles on… the prospect of a new Cold War with Russia and China looms large, while the global economy could be teetering on the brink of recession.
Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
Claim your free copy now
More reading
My 5 favourite stocks to consider buying right now
My favourite passive income stock’s as cheap as chips and I’d consider buying it now
Here’s how many Aviva shares I’d need to live off the passive income
How much do I need to invest to create a 5-figure passive income stream?
Lloyds isn’t the only FTSE 100 stock I’d consider buying for lasting passive income
Royston Wild has positions in Aviva Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
