Aviva (LSE: AV) shares look highly tempting for income seekers right now, with a forecast yield of 8.37%. By 2024, markets expect that to hit 9.15%. This makes it one of the most exciting dividend income stocks on the FTSE 100.
The only thing stopping me from piling into Aviva right now is that I’ve only just bought another high-yielding insurer in Legal & General Group, and I like to diversify.
I’m looking for retirement income
The Aviva share price is dirt cheap, trading at just 7.52 times earnings. There is a reason for that, of course. Investors haven’t enjoyed much share price growth lately. The stock is down 18.02% over five years. Over the last 12 months, it’s down 1.01%.
However, I’d rather buy Aviva when it’s cheap and out of favour, as it is today, than at the back end of one of its periodic bursts of share price growth.
So how many shares would I need to buy to fund a passive income stream for retirement from this one stock alone?
A single person needs £22,300 a year to achieve the ‘minimum’ living standard, according to the Pensions and Lifetime Savings Association. Let’s assume I attempt to generate all of this from Aviva shares, with today’s £10,600 new State Pension lifting my total income closer to £33,000.
Analysts forecast that Aviva will pay a dividend of 32.8p a share this year, although it’s important to stress this isn’t guaranteed. To achieve my £22,300 target income, I’d need to buy a whopping 67,987 shares. At today’s price of 400.6p, that would cost me £272,356.
I’d be crazy to put that much money into a single stock, even if I had the cash to hand. Many people dream of giving up work and living off the passive income from the shares, but it takes a pretty big pot of money.
The yield looks sustainable
If I spread that money between seven and eight FTSE 100 stocks with yields of around 7%, I could still generate that income target. So I might supplement Aviva with housebuilder Barratt Developments, which yields 7.82%, mining giant Rio Tinto (7.75%) and fund manager M&G (9.61%).
High yields like these look tempting, but of course dividend income is never guaranteed. I hold M&G, but I’m worried its dividend will be trimmed this year.
So is the Aviva dividend safe? More than many, I would say. In 2022, it posted a 35% rise in annual operating profit to £2.2bn, as growing life and general insurance policy sales compensated for the slowdown at fund arm Aviva Investors, as stock markets struggled.
Inflation is an ongoing issue, as it has been driving up the cost of general insurance claims, due to higher motor repair, parts and labour prices. Last year’s freezing weather and winter storms added to claims bills.
Despite that, Aviva was still able to announce a £300m share buyback on top of those dividends, and I’m reasonably positive about its income outlook.
At some point I will add Aviva to my portfolio, with the aim of generating a high and rising dividend income stream in retirement. I won’t expect it to produce all of my income though.
