When looking for good passive income, dividend stocks play a key role in my portfolio. One example of this is Aviva (LSE:AV). The UK-based insurance company currently has a dividend yield of 4.88%, above the FTSE 100 average of 3.52%. Are Aviva shares a gem that I should be adding to my portfolio right now?
Sturdy business model supports dividends
Aviva refers to itself as “the leading UK provider of insurance, protection, savings and retirement solutions”.
It has a diversified business model that allows it to service a broad range of clients and have multiple revenue streams open. It also has a case not just in the UK, but also in Ireland and Canada. This geographical reach allows it to weather any fluctuations in demand seen from a particular country.
Putting this together, Aviva shares are appealing to me as an income investor. The steady cash flows and sticky relationships with clients should allow profits to continue to tick over, resulting in steady dividend payments.
For example, the latest results from 2021 highlight this. Cash remittances came in at £1.66bn, up 22% on the previous year. Of note was the performance in the Savings and Retirement division, with net flows of £10bn, a record.
Putting this together, the dividend per share was raised by 5% to 22.05p. The business is even thinking further ahead, commenting that “following the proposed B Share Scheme and share consolidation announced today, this would be equivalent to an illustrative per share amount of c.31.5p, an increase of c.40% on 2021”.
Aviva shares do look attractive to me from this angle. A clear strategy for long-term dividend payments is always appealing to see.
Aviva shares up over the past year
One element that I do need to be aware of for dividend stocks is share price movements. A yield of almost 5% is great, but what if the share price is falling through the floor?
Aviva shares are up almost 11% over the past year. At 447p, it’s back above the prices seen last in 2019 just before the pandemic hit.
Yet when I consider the price-to-earnings ratio, I don’t think the stock is overvalued. The current P/E ratio is 6.24, which if anything is on the cheap side.
From my point of view, as long as the share price doesn’t come under large pressure when I hold it, I’m okay. However, if I can pick up the dividends and also benefit from some share price gains, it’s an added bonus.
Noted pressure from investors
One risk I see is the pressure that could come from activist shareholder Cevian, backed by the infamous Carl Icahn. It has rallied for cost cutting and returning capital to shareholders, which isn’t a bad thing in itself. However, pressure in this form can be harmful to a business over time. It can hinder it from making the decisions that are needed, even if they are unpopular with shareholders in the short term.
On balance, I do think Aviva shares are attractive for passive income, so I am considering buying the shares now.
