When I’m considering good sources of income, Aviva (LSE:AV) has historically been a solid choice. The Aviva dividend yield has remained above 5% for the past year, meaning it’s comfortably above the FTSE 100 average.
With City analysts signalling optimistic forecasts for the next couple of years, things could get even better.
Running over the numbers
Aviva typically pays out two dividends per year. The large final one is usually paid in May, with an interim dividend paid in September. Obviously, special dividends can arise during the year, but I’ve ignored these in my calculations. After all, I can’t accurately say if anything will get paid or not!
Over the past year, the two dividends were 14.7p and 10.3p. This 25p total reflects the 5.6% current yield when I take into account the current share price.
For the coming year, City analysts are forecasting an increase in the May dividend to 22.6p, with the interim dividend at 10.3p. If realised, this would take the 2023 total to 32.9p, a large increase from 2022.
In 2024, the final dividend is expected to be 23p, with a 10.5p interim dividend. This would be a total of 33.5p.
Of course, it’s impossible to say what the dividend yield would be in the future, but I can make some estimates. If I assumed the share price stayed at 445p, my 2023 yield would be 7.39%. For 2024, this would rise slightly to 7.52%.
Nothing is guaranteed
All of the above sounds great. The company has a good business model that allows it to generate high cash flow. In the dividend policy notes, it comments that “these cash dividends represent an attractive pay out level from long-term, sustainable cash and capital, underpinned by our upgraded cash remittance target”.
However, I do need to be careful when looking into the future. The dividend per share and yield projections are just forecasts. Unlike bond coupon payments, dividends can be cut easily. It all depends on how well Aviva performs.
One risk to the forecasts could be excessive volatility in financial markets. The group manages a large amount of money in pension schemes. If we see another stock market crash, or issues in the bond market, Aviva will be negatively impacted. The knock on impact of reduced cash flow, or investors pulling money out of the business, could mean that dividend payments have to be reduced.
Another risk is that the business might have to reallocate resources to other areas of the company. For example, it might decide to buy a company. Or it might invest in revamping a particular division. In both cases, the pool of cash available for dividends could shrink.
A good shot for long-term dividend income
Even with the risks, I do feel comfortable in investing. The Aviva dividend forecasts are attractive, even without being overly ambitious. On that basis, I’ll probably invest some of my money in the stock shortly when I have some free cash.