Aviva (LSE: AV.) shares are up 12.5% in the last six months. They did drop around 6% on 11 April, though, as they went ‘ex-dividend’. This simply means investors buying the stock today aren’t entitled to the next cash dividend due to be paid out on 23 May.
I became an Aviva shareholder in November and have invested again since. The juicy forward dividend yield of 7.6% for 2024 is a big reason why. That soars above anything I can get just sitting in cash!
Here, I’ll look at how many shares I’d need in my ISA portfolio to target a grand a year in tax-free passive income.
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.
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.
Solid operational progress
Aviva has been busy selling off underperforming divisions and non-core assets to focus on capital-light businesses. These tend to generate profits without significant upfront or ongoing expenditure and can produce better margins over time. They now make up over half of Aviva’s portfolio.
Last year, the insurance giant’s operating profit increased 9% year on year to £1.47bn, while premiums rose 13% to £10.8bn. Its workplace pensions business won 477 new schemes during 2023.
Meanwhile, its private health business is booming, with sales growing 41% as companies and individual customers look to avoid lengthy NHS waiting lists. Standing at 7.6m treatments in England alone, this backlog isn’t expected to be cleared for years.
The company also announced a new £300m share buyback programme and hiked the dividend 8% to 33.4p per share.
In March, CEO Amanda Blanc said: “Aviva is financially strong. We are trading consistently well. Our prospects have never been better. We have leading businesses in growing markets, a fantastic brand, and we are investing substantially to make service better for our 19m customers.“
Naturally, there are risks to consider. Unforeseen events could lead to larger claims payouts, and an economic downturn might significantly lessen the value of its investments, leading to financial losses.
Investing for passive income
As I write on 19 April, the market expects Aviva shares to pay out 34.7p per share for the current financial year (FY24).
Assuming this forecast comes to fruition, which isn’t guaranteed, I’d need to buy approximately 2,900 shares to earn £1,000 a year in passive income. Those would set me back about £13,195.
Now, that’s not the sort of loose change I’m likely to find down the back of the sofa when I’m hoovering the cushions. But I could still commit to building up my position over time.
The good news here though is that £13,195 is well within the £20k annual ISA allowance. Therefore, if I had such money at hand, I could buy Aviva shares right now to target a grand a year in passive income.
Looking ahead to 2025, the forecast payout is 38p per share. That translates into a very tasty 8.3% forward yield. It means my annual £1,000 would become £1,102 without lifting a finger.
While no payout is assured, I’m encouraged by management’s intentions here. It recently said: “Our preference remains to return surplus capital regularly and sustainably to shareholders.”
That’s the sort of commentary I like to hear from the companies in my portfolio. So Aviva makes it onto my ISA buy list again this year.
