Aviva (LSE: AV.) shares are popular with income investors and it’s easy to see why. At present, it sports one of the highest dividend yields in the FTSE 100 index.
Should I buy Aviva shares for the big dividend? Or are there better stocks to buy for my portfolio today? Let’s take a look.
Aviva is in solid shape
The most recent results for the insurance company’s third quarter of 2022, showed it is in solid shape right now.
For the first nine months of 2022, general insurance (GI) gross written premiums were up 10% year on year to £7.2bn. And the GI combined operating ratio – a measure of profitability used by insurance companies to gauge how well their daily operations are performing – was strong at 94.3% (92.4% a year earlier).
As for the wealth division, its net flows for the period were 6% of the opening assets under management (AUM) at the start of the year.
Trading is positive and our performance is consistently strong. We have had a good nine months due to our market leading positions, our customer focus and the clear benefits of Aviva’s diversified business across insurance, wealth and retirement.
Aviva CEO Amanda Blanc
Meanwhile, in a trading update posted earlier this week, Aviva said that its GI businesses in the UK, Ireland, and Canada had continued to “trade positively” in the closing months of 2022. For the full year 2022, it expects a combined operating ratio of around 94.6%.
Importantly, in this update it said its dividend guidance and outlook for capital returns remain unchanged. This is good to know as rival Direct Line recently scrapped its dividend due to a weak business performance.
Dividend guidance
As for the company’s dividend guidance, Aviva said in its third-quarter results that it expects to pay out 31p per share for 2022 and 32.5p per share for 2023. At the current share price, these payouts translate to yields of around 6.8% and 7.1%. These are attractive.
There could be more returns for shareholders however. In its Q3 results, the company also said it expects to commence “additional returns of capital” to shareholders with its 2022 full-year results (in March).
This is all quite encouraging, in my view. In the near term, the stock could be a cash cow.
Patchy dividend track record
One issue for me personally is the company’s long-term dividend track record. In the past, Aviva has been known to slash its dividend when profits fall. Over the last decade, it has cut its payout on several occasions. As an ex-holder of the stock, I have had my fingers burnt.
So while the yield here does look attractive right now, I’m going to hold off on buying the shares. I need to see the company demonstrate that it can consistently grow its dividend before I invest.
Until it shows a track record of stability in the payout, I think there are better dividend shares to buy for my portfolio.
