Life insurer Aviva (LSE:AV.) is one of my favourite dip buys of 2023. The FTSE 100 firm has risen a healthy 13% in value since I opened a position in October. And it’s huge dividend yields mean I’m tempted to buy some more to boost the income I receive from my shares portfolio.
Today Aviva shares yield a show-stopping 7.39%. This is far ahead of the broader average of 3.79% for Footsie companies.
Life insurance companies face an uncertain outlook heading into the New Year. Demand for their financial products could be subdued if consumer spending remains under pressure.
Yet I think Aviva’s impressive dividend credentials still makes it a top stock to buy today. Here’s four reasons why I’m aiming to add to my holdings at the next opportunity.
1. Sector-beating dividends
Chart created with TradingView
Aviva doesn’t just offer yields above almost all other FTSE shares. As the chart above shows, the business also offers readings above most of its industry rivals.
Its forward yield sits a good 2% above that of Zurich (seen in white), while it also beats those of Aegon (purple), Sun Life (green), and AIG (yellow) by an even larger margin. Only Legal & General (blue) — a share I also own — surpasses its UK rival.
2. Balance sheet strength
Everyone loves a big dividend yield. But there can be a huge difference between the shareholder payouts brokers are predicting and the actual dividends that investors receive.
However, thanks to its cash-rich balance sheet there’s a great chance Aviva will deliver those forecasted rewards. The company’s Solvency II capital ratio has receded recently. But it still clocked in at a mighty 200% as of September.
3. Dividend growth
That strong financial foundation means analysts expect dividends here to keep increasing over the short-to-medium term. As a result, the yield on Aviva shares shoots to an impressive 8.8% for 2025.
I’m confident that the FTSE firm will steadily grow its dividends for many years to come. The company itself has pledged to increase the cash cost of the yearly payout by low-to-mid single-digit percentages beyond this year.
I’m expecting profits and dividends to grow over the long term thanks to an unstoppable demographic trend. As the number of elderly citizens grows rapidly in the UK, Ireland, and Canada, demand for the wealth, protection, and retirement products that it sells can also be expected to soar.
Aviva’s focus on capital-light businesses should give it added financial firepower, too, to increase dividends.
4. Passive income at low cost
Finally, Aviva shares give investors a chance to make market-beating passive income without breaking the bank.
At 430p per share, the company trades on a forward price-to-earnings (P/E) of 11.4 times. This is below the FTSE 100 average of 12 times.
I plan to hold the business in my UK shares portfolio for at least the next decade. Over that period I expect it to give my returns an enormous boost.
