The Aviva (LSE:AV.) shares I hold are among my favourite investments. Why? They provide me with a regular income that I don’t have to lift a finger to earn.
There are plenty of companies on the London stock market that pay a dividend. But the enormous cash rewards Aviva is committed to paying makes a real difference to my wealth.
I’m hoping to eventually live off the income the FTSE 100 firm provides when I stop working. But in the meantime, I’m using the dividends I receive to hopefully help me retire earlier than most.
Should you invest £1,000 in Aviva right now?
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A £4,894 income
In 2023, the dividend on Aviva shares was 33.4p. The company’s currently priced at 489.6p per share, which provides a trailing dividend yield of 6.8%.
Had I invested £10,000 in the financial services giant last year, I’d have made a second income of £680 based on that figure. If the yield remains the same over the next 10 years, I’ll make £6,800.
That’s a pretty nice amount for doing nothing, I’m sure you’d agree. And thanks to the miracle of compounding — which involves reinvesting any dividends I receive — I can generate an even more impressive passive income.
With Aviva shares, I’d improve my total dividends to £9,307 over 10 years instead of that £6,800.
Over a 30-year horizon, if the yield remained the same at 6.8%, dividend compounding would have added £61,968 to my initial £10,000 investment. So the £71,968 investment pot would be generating £4,894 in dividends each year!
Growing dividends
It’s important to remember that dividends are never, ever guaranteed. But in the case of Aviva shares, I think there’s a good chance I could make an even-larger passive income than described above.
That’s because I expect the company to continue steadily growing dividends over time. It’s a view shared by City analysts for the next few years at least, as the table below shows.
| Year | Predicted dividend per share | Dividend growth | Dividend yield |
|---|---|---|---|
| 2024 | 34.7p | 4% | 7.1% |
| 2025 | 38.1p | 10% | 7.8% |
| 2026 | 41p | 8% | 8.4% |
Aviva’s strong balance sheet leaves it in good shape to meet these forecasts too. Its Solvency II capital ratio stood at an excellent 206% as of March.
The business is so flush with cash that it recently completed a £300m share repurchase programme. Its formidable financial strength is also helping it to pursue growth by acquiring capital-light businesses. Just last week, it sealed a £249m takeover of Probitas Holdings.
A top long-term stock
I’m expecting Aviva to be a strong dividend payer for years to come. Profits and cash flows could light up as a soaring elderly population drives demand for retirement, wealth and protection products.
On the downside, the business faces considerable competition to win business in its UK, Irish and Canadian markets. Major rivals include Legal & General, Zurich, AXA and MetLife. Intense competition could also be a major drag on its margins.
Yet I believe the potential benefits of owning Aviva shares outweigh the risks. Indeed, this is a stock I think could deliver exceptional dividend income and capital gains over the long term.
