Life insurance colossus Aviva (LSE: AV) is regularly rated by The Motley Fool’s team of writers as one of the best dividend selections that one can get on the FTSE 100. And it’s not rocket science to see why us Fools are so bullish, as I’ll now explain.
1: Eye-popping yields
The most obvious place to start with Aviva is by looking at the near-term dividend yield. And boy does the insurer blow the doors off here. Thanks to predictions of a 32.3p total full-year payout, a reading of 7.7% can be found for 2019, one which outclasses the broader Footsie forward average around 4.5% by one hell of a margin.
2: A rich history of dividend growth
Aviva has a terrific appetite when it comes to rewarding its investors handsomely. And, through a combination of share buybacks and meaty dividend increases, it’s really been pulling out all the stops of late. It hiked the full-year dividend 9% alone in 2018 to 30p per share. This means shareholder rewards have grown by more than two-thirds over the past half a decade.
3: A robust balance sheet
The insurance play’s come a long way since it was forced to cut dividends in 2012 and 2013 on capital and liquidity concerns and a fragile earnings outlook. The balance sheet’s been rebuilt through a blend of major divestments, cost-cutting, and better cash creation, while its profits outlook has been improved through the decision to doubling-down on core markets and the resurrection of its failing divisions across Europe.
There’s a number of gauges we can use to illustrate Aviva’s exceptional balance sheet strength and therefore the chances of it continuing to hike dividends at the expected rate. Take the company’s Solvency II shareholder cover ratio, for instance, which burst through the 200% barrier last year (at 204%) and up 600 basis points from 2018 levels.
Or how about cash flow? Last year Aviva’s excess centre cash flow surged to £2.4bn from £1.7bn a year in 2017, thanks in large part to an upsurge in another of the company’s key financial metrics, cash remittances. These advanced 31% year-on-year to £3.1bn, due primarily to surging remittances from its UK businesses.
4: Rock-solid dividend cover
If these numbers aren’t enough to convince you, then the firm’s forward dividend cover readings certainly should. This is, of course, the simplest way to evaluate the sturdiness of payout projections as they show how many times over the estimated dividend is covered by earnings. And at Aviva, this sits at 2 times, bang on the widely-accepted safety benchmark.
5: More to come!
Aviva’s not just a terrific selection for big dividends now, either. The face of the company may have changed, but new chief executive Maurice Tulloch isn’t about to abandon the strategy which has given the company a new lease of life.
There’s more plans to simplify its processes to cut costs, to continue aggressively paying down debt (like £1.5bn worth of maturing debt over the next three years), and to keep investing heavily in areas like digital and emerging markets to accelerate growth.
It looks for all the world, then, that Aviva’s in great shape to generate smashing shareholder returns for years to come. For my money, it’s indeed one of the best income plays you can find right now on the Footsie.
