Dividend shares can help build wealth, but the best ones are not straightforward to identify, in my view. There are lots of things to consider. The biggest point for me is that dividends are never guaranteed.
I want to take a closer look at Aviva (LSE: AV.) as potentially one of the best on the FTSE 100 index.
It operates in the financial services industry, where I understand there are risks, but juicy rewards to be had too.
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Let’s look at some recent developments, fundamentals, and risks ahead that will help shape an answer to my opening question.
Latest news
Aviva today announced interim results for the six months ended 30 June 2024, and they made for good reading.
Sales across its insurance, wealth, and retirement divisions rose by 12% compared to the same period last year. Plus, insurance premiums increased by 15%. Operating profit came in at 14% higher, and its interim dividend was hiked by an impressive 7%.
Despite economic turbulence being a major threat, Aviva seems to be thriving. I can’t help but wonder how the firm may fare in greener pastures.
Fundamentals and future outlook
Starting with returns, a dividend yield of 7.3% is significantly higher than the FTSE 100 average of 3.6%.
Moving onto valuation, Aviva shares look excellent value for money on the two main metrics I use to gauge value. They trade on a price-to-earnings growth (PEG) ratio of 0.5. Any sub-1 reading indicates value. Furthermore, the shares trade on a price-to-earnings ratio of 12, which is close to the index average, but still good for what I consider a fantastic company.
It’s hard to ignore Aviva’s brand power, track record, and ability to generate cash hand over fist. This could lead to continued investor rewards, growth to boost earnings, as well as share buybacks. For example, demand for wealth, insurance, and retirement products is only rising in the UK, Canada, and Ireland, all its core territories.
Risks to note
Despite navigating the current economic turbulence well, as shown by interim results, continued pressure could impact earnings and profitability. Consumer spending on non-essential products such as wealth management or life insurance, could be squeezed. This is something I’d keep an eye on.
Perhaps a smaller issue I’d take into account is that of intense competition in the market. However, Aviva’s reach and brand power could negate the threat of this issue.
My verdict
Taking everything into account, I do think Aviva shares represent one of the best dividend stocks to help build wealth. An attractive market position, good fundamentals, and exciting future prospects help me come to my decision. Risks mentioned could hurt the firm, but the pros outweigh the cons for me.
If I had some spare cash today, I’d love to snap up some shares.
