The FTSE 100’s recent rally has lifted the Aviva (LSE:AV.) share price further from its 2023 lows. But at current prices the financial services giant still offers spectacular dividend yields. It suggests the business remains a great way to make a large second income.
For the current year the yield on Aviva shares sits at 8.4%. And for 2024 the reading moves to an even better 9.1%. Both figures smash the forward average of 3.7% for FTSE index shares.
At these levels someone who has a decent amount to spend could potentially supercharge their dividend income. Based on next year’s projected dividend, someone who invested £10,000 today could make a passive income of £910 a year.
So should I buy the FTSE 100 company for my portfolio today?
Cash machine
First off, I’m encouraged by how robust current dividend forecasts for Aviva shares currently appear.
Predicted dividends for 2023 and 2024 are covered 1.6 times and 1.7 times over by expected earnings. This isn’t ideal: a reading above 2 times provides ultimate peace of mind for investors.
Still, these readings are far from terrible. And given the company’s huge cash reserves I still expect it to pay the large dividends that analysts are expecting. Aviva’s Solvency II shareholder capital surplus stood at a mighty £7.7bn as of March.
Critically the business is dedicated to returning extra cash it has to its investors too. It completed a fresh £30m share repurchase programme in June, which in turn took total capital returns since 2021 to above £5bn.
The route to big returns
Okay, so Aviva shares look in great shape to pay those large dividends that City analysts are expecting. But as a long-term investor I’m seeking more than just shares that can pay above-average dividends over the next 18 months.
I’m searching for stocks that can continue to pay market-beating shareholder payouts and to grow them steadily. Shares like these can reduce the impact of inflation on my wealth.
Furthermore, I’m seeking FTSE 100 shares that should grow their share price. A large dividend doesn’t count for much if a company’s share price stagnates or even drops.
Blue-chip shares Lloyds and British American Tobacco, for instance, have delivered terrible returns in recent years, despite paying above-average dividends. The returns delivered by Aviva in that time haven’t been especially great either, to be fair.
Bright future
However, Aviva is a stock I expect to deliver strong capital gains and big dividends in the years ahead. One reason is that demand in the markets it operates in — protection, pensions, annuities and lifetime care, for instance — should all rocket as the UK’s elderly population rapidly grows.
I’m also encouraged by the company’s transformation under chief executive Amanda Blanc. Since her appointment in 2020 the firm has made a string of asset disposals to boost the balance sheet and improve earnings in its core marketplaces. She has also put digitalisation at the front of her transformation programme.
Aviva isn’t without risks. For one, it operates in a highly competitive industry. But on balance I still think it’s a top dividend stock to buy.
