Why now could be the time to buy into FTSE 100 member Aviva’s share price

Aviva plc (LON: AV) could offer strong dividend growth to help it outperform the FTSE 100 (INDEXFTSE: UKX) over the medium term.

| 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.

Investor demand for high-yield FTSE 100 shares seems to have fallen in recent months. Inflation has settled back to a level which means that a wide range of shares now offer positive real-terms income returns.

As a result, now could be the perfect time to buy high-yield shares such as Aviva (LSE: AV). They may offer lower valuations due to reduced demand from investors, yet they could deliver FTSE 100-beating returns over the next few years.

Improving prospects

While Aviva has a yield of 5.6% at the present time, the insurance company offers strong dividend growth potential over the next couple of years. Its bottom line is due to rise by 8% next year, and this is set to make a higher shareholder payout more affordable. In fact, dividends are expected to rise by 9.2% per annum in the next two financial years. This puts the stock on a forward dividend yield of 6.7% next year, which would make it one of the highest-yielding shares in the FTSE 100.

Even though dividends per share are expected to rise rapidly over the medium term, Aviva’s financial standing is due to remain sound. Its dividend payout ratio is forecast to be 52% next year, which suggests there is scope for a higher proportion of earnings to be paid out as dividends. This would be in line with the company’s wider strategy to reward shareholders for its continued success.

Looking ahead, Aviva seems to be well-protected from the potential impact of Brexit. It has a diverse business model, with international growth being high. As such, now could be the perfect time to buy it, with a rising dividend having the potential to boost investor sentiment.

Improving performance

Also offering impressive dividend growth potential is leading housebuilder in Scotland, Springfield Properties (LSE: SPR). The company released a positive trading update on Monday which showed that profit is expected to rise by 43% in the year to 30 June 2018, with revenue due to be around 27% higher than in the previous year.

The company has continued to see a relatively robust level of demand for its properties. With demand exceeding supply across large parts of the UK and mortgage availability being high, the wider sector could experience further growth. This is expected to help the company to deliver earnings growth of 28% in the current year, followed by further growth of 16% next year. This puts the stock on a price-to-earnings growth (PEG) ratio of just 0.7, which suggests that it offers a wide margin of safety.

With the company having a dividend yield of 3.4% from a payout that is covered 2.6 times by profit, the prospect of rapid dividend growth seems high. As such, the stock could hold appeal for both income and growth investors alike, with its shares appearing to be undervalued at the present time.

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.

Peter Stephens owns shares of Aviva. 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.

More on Investing Articles

Investing Articles

A 9.6% yield but down 14%! Should I consider this FTSE gem for my dividend portfolio?

There are several things to consider when looking for FTSE shares with dividend potential. Here, our writer outlines his evaluation…

Read more »

Young Asian man shopping in a supermarket
Investing Articles

I’d shun Lloyds Banking Group and consider this stock for passive income instead

This company's dividend record knocks spots off Lloyds Banking Group's, and it looks like decent value now with a yield…

Read more »

Investing Articles

Will the 5.6% BT Group dividend yield grow in 2024?

Zaven Boyrazian explores whether BT Group can continue hiking its dividend and if the telecoms giant belongs in his income…

Read more »

Investing Articles

FTSE 100’s near a 52-week high, but this stock’s still dirt cheap!

The FTSE 100's on the rise, but not all stocks have been so fortunate. Here’s one company that got left…

Read more »

Investing Articles

Is this ‘secret weapon’ a multi-billion pound reason to buy Lloyds shares?

Dr James Fox explains how Lloyds shares could rise even higher as the bank's 'strategic hedge' is likely to boost…

Read more »

Smiling senior white man talking through telephone while using laptop at desk.
Investing Articles

3 of the best penny stocks for growth, dividends, and value!

Looking for top penny stocks to buy? Royston Wild believes these UK small-cap shares could prove lucrative investments in the…

Read more »

Investing Articles

How I’d aim to turn an empty ISA into £275k by purchasing cheap shares this summer

Harvey Jones is taking advantage of the summer stock market lull to buy cheap shares and build a high and…

Read more »

Investing Articles

What’s the minimum I need to invest every month to earn a meaningful passive income?

When looking to secure a stream of passive income it's important to be realistic. Our writer investigates a strategy to…

Read more »