Buying 8,254 Aviva shares in an empty ISA would give me a £1,370 income in year one

Harvey Jones is tempted to add Aviva shares to his Stocks and Shares ISA this year. Today’s 7.37% yield isn’t the only attraction.

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Aviva (LSE: AV) shares are finally showing a bit of life, climbing almost 20% in the last six months. Although I won’t get too excited.

The Aviva share price is up just 2.94% over 12 months and 11.35% over five years. That’s not great, but it’s not the end of the world, either. Most investors don’t buy the FTSE 100 insurer in the hope of making an overnight fortune, but to see their wealth compound over time through the magic of reinvested dividends.

It’s time to start loading up my Stocks and Shares ISA ahead of the annual 6 April deadline, and Aviva is high on my wish list. If I invested my full £20,000 allowance into Aviva, I’d pick up 4,413 shares at today’s price of 4.532p. So how much income would that give me?

It’s all about the dividend

The board plans to pay a total dividend of around 33.4p per share for the 2023 financial year. Based on that, my 4,413 shares would give me a passive income of £1,474 in year one. Which is pretty decent, if you ask me. Especially since it will be entirely free of tax inside my ISA, in contrast to my other earnings.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

This income equates to a 7.37% dividend yield, comfortably above today’s FTSE 100 average of around 3.9%. That’s one of the rewards of buying individual stocks, but there are also risks.

Dividends aren’t guaranteed, and can be cut at any time if the business doesn’t generate enough cash to fund them. The share price of an individual company will inevitably be more volatile than an entire index. This can work in my favour, or against me.

It’s not a growth stock

CEO Amanda Blanc has worked hard to slim down Aviva, exiting all global operations aside from those in the UK, Ireland, and Canada. Yet the share price has been slow to respond. General insurance premium revenues have been growing steadily, but this has been offset by rising weather-related claims (which may accelerate with climate change).

Aviva’s wealth management arm has struggled amid “challenging market volatility”, but I’m optimistic this will change once inflation and interest rates fall, and a potential recovery finally gets underway.

I don’t expect Aviva’s shares to shoot the lights out. But income of 7% a year, plus a splash of capital growth on top, will keep me happy.

With luck, I’ll be tapping into a rising income, too. In 2021, Aviva paid a dividend of 22.05p per share, which it hiked 41% to 31.0p in 2022, then by another 7.7% to today’s 33.4p. I’m hoping for more of that (but as I said, no guarantees).

I won’t invest my entire ISA in Aviva — there are quite a few other FTSE 100 stocks I’d like to buy as well. I’d happily invest £5k, though. That would give me 1,103 Aviva shares and income of £368 in year one. Which is a good start. I can always buy more 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.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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