Why Aviva Plc Is Now A Better Yield Play

Having had its dividend slashed in March of this year, Aviva plc (LON: AV) received a bad press. However, I think it is a better investment and yield play now than it has been in a long time.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

On the face of it, March 2013 was not a good time for investors in Aviva (LSE: AV) (NYSE:AV.US). Its final dividend was cut from 26p in the prior year to 19p; a fall of 27%. As you may expect, shares nosedived, although their fall of 12.5% does not sound quite as bad as it felt for shareholders at the time.

The reason for the dividend being cut was simply that it was unsustainable. Aviva was not paying the dividend out of operating cash flow and, as such, its dividend was not covered and unless cash flow increased it would one day have had little choice but to cut its dividend. So, a relatively new CEO took the decision to take some short-term pain for long-term gain.

The cutting of the dividend coincided with a renewed push to reduce the company’s leverage ratio (which had increased partly as a result of the sales of various assets) and also to improve the diversity, cash generation and, ultimately, growth of the business. Essentially, there seemed little point in ignoring the problems the company was facing in favour of maintaining a very generous dividend payment.

So, in my view, the decision to cut the dividend was a wise one for it gave the company the resources and mandate to make the necessary adjustments so as to ensure the long-term success of the business. In addition, shares are now trading beyond the 360p level they were on the day prior to the dividend cut announcement, so the market seems to have (to some extent) bought into the CEO’s plan.

Moreover, Aviva’s yield remains highly attractive: it is the seventh highest-yielding stock in the FTSE 100 and currently offers a yield of 5.1%. With the best no-notice bank accounts offering little over 2%, a major insurance player that has a renewed and sensible strategy and that offers a yield of more than 2.5 times the best savings account is a winner with me.

Of course, you may be looking for other ideas in the FTSE 100 and, if you are, I would recommend this exclusive wealth report, which reviews five particularly attractive possibilities.

All five blue chips offer a mix of robust prospects, illustrious histories and dependable dividends, and have just been declared by The Motley Fool as “5 Shares You Can Retire On“.

Simply click here for the report — it’s completely free!

> Peter owns shares in Aviva.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

Up 75% in 5 years, I reckon this FTSE 250 still has lots to give!

Our writer explains why this FTSE 250 stock could still continue to provide growth and returns despite already being on…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 high-quality FTSE 250 stocks to consider buying

The FTSE 250 is home to some of the best investment opportunities out there. This Fool highlights two stocks for…

Read more »

Investing Articles

The Marks and Spencer share price dips! Is this my chance to buy?

Marks and Spencer was one of the hottest stocks on the market last year. With its share price falling in…

Read more »

Growth Shares

How low could the boohoo share price go?

Jon Smith explains why the enterprise value and the low risk of bankruptcy should help to prevent the boohoo share…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Down 23% in a year! Can the Diageo share price regain £30 in 2024?

This Fool UK writer is checking the charts to see if the Diageo share price can recover from the recent…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

I wouldn’t touch this FTSE 100 stalwart with a bargepole

Despite looking like a bargain on paper, this Fool is avoiding FTSE 100 constituent Vodafone at all costs. Here he…

Read more »

Investing Articles

I’m waiting for the Rolls-Royce share price to pull back before I buy

The Rolls-Royce share price has been the Footsie's best performer in the last year. But this Fool has no intention…

Read more »

Front view photo of a woman using digital tablet in London
Dividend Shares

2 dividend stocks to take me from £0 to £9.5k in second income

Jon Smith talks through some ideas with second income potential, including one stock that has a dividend yield above 10%…

Read more »