Should I buy this FTSE 100 gem for second income before June?

This big-dividend FTSE 100 stock could make a decent addition to a diversified portfolio focused on generating a second income.

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Insurance, wealth, and retirement company Aviva (LSE: AV) looks like a good stock for creating a second income via shareholder dividends.

The firm operates in the UK, Canada, and Ireland, and I reckon it’s a bit of a gem in the FTSE 100 index.

The valuation has been modest for some time. However, the reason for that could be that the firm is perceived as being vulnerable to the ups and downs of the economy.

The dividends are rising

If times are tough, people will likely buy fewer of the firm’s insurance and wealth products. Although that risk is balanced a bit by steady cash flow from existing policy holders.

Nevertheless, Aviva’s business has struggled in the past. In the wake of the credit-crunch and recession in the late noughties, profits turned to losses and the directors slashed the dividends. When the company released its full-year results for 2008, the share price halved over two days!

Then, when the pandemic struck, Aviva scrapped its final dividend for 2019 because of pressure from nervous regulators with long memories!

So cyclical risks are real and could affect shareholders again in the future. Indeed, the earnings and cash flow records show a fair bit of volatility.

However, since 2020, the company has been raising the dividend a little each year and the performance of the share price has been steady.

In the full-year report for 2023, the company delivered an upbeat outlook statement. The directors pointed to steady trading and decent growth prospects ahead.

That bullish assessment shows up in City analysts’ estimates. They expect earnings to grow by mid-teen percentages in 2024 and 2025.

On top of that, the dividend looks set to grow by just under 4% this year and almost 10% in 2025.

A modest-looking valuation

However, despite that anticipated progress, the valuation looks attractive. With the share price near 488p (13 May), the anticipated dividend yield for 2025 is just above 7.7%. That compares well to the aggregate yield of the FTSE All-Share index, which is near 3.7%.

We could describe Aviva as a dividend dog of the Footsie, held back perhaps by investors’ lingering fears that the good times may one day end again for the business.

It seems unlikely the valuation will ever shoot the lights out despite steady growth in the business. But, to me, that rising stream of dividends looks attractive for second income.

On top of that, I’m optimistic about the general economic outlook.

There’s a trading update due on 23 May, so we’ll find out more about recent business progress then.

In the meantime, I’m inclined to dig in with further research and consider buying some of the shares. They could sit well in an income portfolio alongside other FTSE 100 holdings such as National Grid, Legal & General, and Unilever.

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.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Unilever 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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