Dividends from UK stocks have rebounded strongly since the depths of the Covid-19 crisis. I myself have prioritised investing in dividend shares in 2022 to capitalise on this bonanza.
Pleasingly, 2023 is tipped to be another bumper year for dividend growth too. In fact analysts at financial services firm AJ Bell believe shareholder payouts from FTSE 100 companies will hit record highs of £85.8bn.
This would represent an 8% increase from this year’s expected levels. It would also take out the all-time high of £85.2bn punched in 2018.
Dividends from FTSE index firms are steadily recovering from the lows of £61.8bn struck in the depths of the pandemic. And AJ Bell expect them to keep growing, driven by large payouts from oil and gas companies like BP and Shell.
A better dividend stock
I’m not planning to invest in fossil fuel companies for passive income. That’s even though the ongoing war in Ukraine could continue to boost oil profits. As a long-term investor, I fear the possibility of weak dividends later on as the growth of renewable energy hits earnings at the likes of BP.
This isn’t a problem for me, either. This is because there are many top dividend shares on the FTSE 100 for investors to choose from today. Aviva (LSE:AV) is one of my favourites that I’m considering buying in 2023.
7.9% dividend yield
That’s not to say that the business doesn’t carry risks of its own. Demand for life insurance products can fall sharply during economic downturns. General insurance providers like Aviva are also taking a hit from high claims inflation, and especially so in the motor division.
But I’d still buy this FTSE 100 share for its predicted dividends in 2023. And I’d look to hold it in my investment portfolio for years to come.
The yield here for next year sits at more than double the 3.7% average for Footsie stocks. And the business has terrific balance sheet strength that should help it meet next year’s projected dividends.
In fact Aviva has even tipped the possibility of share buybacks in early 2023 as it seeks to return some of its excess cash. The company’s Solvency II capital ratio stood at 223% as of September.
| Aviva’s share price | 447.6p |
| 12-month price movement | -18% |
| Market cap | £12.4bn |
| Forward price-to-earnings (P/E) ratio | 8.1 times |
| Forward dividend yield | 7.9% |
| Dividend cover | 1.6 times |
As a long-term investor there’s a lot I like about Aviva. Demand for its pensions and retirement products should grow strongly as the UK’s elderly population balloons. The company is rapidly digitalising its operations to steal ground against the competition.
It can also use its cash-rich balance sheet to embark on earnings-boosting acquisitions. Chief executive Amanda Blanc recently advised that “surplus capital above [our] target level of 180% is available for investment in the business and tactical bolt-on M&A to drive further growth”.
