Aviva vs Imperial Brands: which of these FTSE 100 shares is the best dividend stock for 2024?

The FTSE 100 is packed with high-yield dividend shares following recent volatility. Which of these should I buy at the next opportunity?

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Dividends are never guaranteed. But current City projections suggest that both Aviva (LSE:AV) and Imperial Brands (LSE:IMB) could be brilliant FTSE 100 shares to buy for passive income in 2024.

Aviva’s dividend yield sits at an impressive 8.3% for the next calendar year. Imperial Brands meanwhile, offers up exactly the same yield for its financial year to September 2024.

It’s a dead heat in terms of yield then. But there’s more to successful investing than just concentrating on this. With this in mind, which FTSE stock would I be better buying for dividends next year?

Dividend cover

First, let’s consider the robustness of both firms’ dividend forecasts.

Over at Aviva, brokers expect a full-year dividend of 33.15p per share for 2024. But worryingly, this projection is barely covered by expected earnings for the year. Dividend cover sits at just 1.1 times.

On this front, Imperial Brands looks much stronger. An expected 154.9p per share reward comes with dividend cover of 1.9 times. That’s just below the widely accepted security watermark of 2 times and above.

Advantage: Imperial Brands

Balance sheet

It’s worth noting that Aviva has long had weak dividend cover. But like most life insurance companies, this hasn’t prevented it from paying market-beating dividends.

This is thanks to the FTSE 100 company’s reliable cash flows. The regular premiums collected from its customers means it has enjoyed a steady stream of income. And that’s allowed it to return cash to its shareholders through dividends and share buybacks.

Right now, Aviva’s balance sheet continues to look very robust. Its Solvency II capital ratio stood at a robust 200% as of September, a quality that encouraged the firm to recently say that it “[anticipates] further regular and sustainable returns of surplus capital”.

Imperial Brands also has dependable cash flows it can use to pay large dividends and share buybacks. This is thanks to the addictive nature of its products that generate stable revenues.

Just last month the tobacco titan announced a fresh £1.1bn share buyback programme for this financial year. However, Imperial Brands does have a large net debt (which stood at £8.4bn in September) that it needs to get paid down.

On the plus side, its net debt to EBITDA ratio of 2 times sat the bottom end of its targeted 2-2.5 times then. But this could spike again if sales fall, an increasing threat in the tobacco industry where regulators are slapping more and more restrictions on the sale, marketing, and use of cigarettes and vapes.

Advantage: Aviva

The verdict

I think both Aviva and Imperial Brands are in great shape to pay the near-term dividends that analysts expect. But I believe the life insurer is the better income stock for me to buy more of next year.

Revenues at Aviva could disappoint in the near term if consumer spending power remains under pressure. But demand for its wealth, protection and retirement products should grow strongly over a longer time horizon as populations in its UK, Irish and Canadian markets rapidly age.

Imperial Brands, on the other hand, faces a more uncertain future. Its products like West and JPS carry formidable brand power. But long-term demand could still collapse as regulators get tough with the tobacco industry. And this is likely in my opinion to affect dividends beyond next year.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has positions in Aviva Plc. The Motley Fool UK has recommended Imperial Brands Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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