I invest for passive income, and I can’t think of a better way to get it than investing in top UK shares. What I want is a portfolio of stocks that can generate steady long-term dividends for me. And then I’ll reinvest my dividends over the years.
I’ve almost always held insurance shares, and for a while now I’ve had Aviva (LSE: AV) in my portfolio. Aviva is on a forecast dividend yield of 6.7% at the moment, and there’s a few things I want to say about that.
Price weakness
Firstly, the yield has been boosted by Aviva share price weakness. Aviva shares are down 14% over the past 12 months, though they have been picking up over the past month.
As we head into recession, there’s a realistic chance the dividend could be cut back. And I expect a bit of volatility from insurance dividends. But for passive income, what I want is a good average annual yield, over a decade or more. And I think the business can realistically offer that.
There are definitely some bigger yields out there. So why have I passed up some double-digit ones and gone for Aviva? It’s all about long-term dependability again. And I reckon that should hopefully beat the occasional one-off high yields.
How much?
So, for a passive income of £100 per month, how many Aviva shares would I need? On today’s figures, I’m looking at approximately 4,000 shares, costing a little over £18,200.
I don’t yet have that number of Aviva shares, or that amount to buy them all now. But to get there, what if I put away £100 per month to invest in Aviva shares instead? It would take a little less than 11 years, of that modest monthly outlay. After that, I could take my passive income for as long as I want, with no extra effort.
Now, all this assumes the Aviva share price and dividend will remain unchanged, while I’m accumulating my pot and afterwards. And I’m as confident as I can be that that’s not going to happen. But I present this just as an illustration of the kind of results that could be achieved, based on relatively small sums of cash invested regularly over the long term.
Reality
In reality, I expect the Aviva share price to rise over the long term (though it actually hasn’t done a lot of that in the time I’ve held the stock). And I think the dividend yield is likely to settle to a lower long-term average. These are just my personal thoughts, though, and not predictions.
There’s definitely risk associated with investing in a business that’s so close to the heart of the UK’s financial outlook, especially when that outlook is so rough for the next couple of years. And it’s not like we’ve never seen a financial sector meltdown before.
To try to offset risk, I go for diversification. So I’m steadily building up a portfolio of dividend shares in various FTSE 100 sectors, to target long-term passive income. It includes Aviva.
