The latest Aviva dividend increase grabbed my attention!

Christopher Ruane ix excited by the latest growth in the Aviva dividend and considers whether he ought to add the income share to his portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Aviva plc

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Insurance company Aviva (LSE: AV) is a popular income stock among many investors. The Aviva dividend yield is a juicy 6.8%. And in its interim results released today (14 August), the FTSE 100 member announced its latest dividend increase.

So, is this a share I ought to add to my portfolio for its passive income potential?

Interim dividend increase

The rise in the interim payout per ordinary share announced today means it is set to increase by 7% compared to last year’s equivalent. It will stand at 11.9p.

If the same increase applies at the full-year level – which is not guaranteed – that would mean an annual dividend of around 35.7p per ordinary share. That would put the prospective Aviva dividend yield at 7.3%.

That reflects the strong growth of recent years. As recently as 2021, the payout per ordinary share stood at 22.05p.

Longer term though, the dividend picture has been more mixed. The dividend for each ordinary share was cut by almost a third in 2020.

Promising outlook

Although such cuts are a risk with any dividend, that does not mean they are painless. From an income perspective, that deep 2020 cut put me off owning Aviva shares for some time.

That said, the past few years have seen the business reshape itself to focus on its core business. It has continued to demonstrate its cash generation potential. That is important in this context because it can help fund the shareholder payout.

As the company’s chief executive said in today’s announcement: “Sales are up. Operating profit is up. The dividend is up. Our plan to deliver more for customers and shareholders is working really well.

More interesting from the dividend perspective, in my view, was a notable increase in operating funds generation and operating own capital generation. But I do also think the sales growth reflects the success of Aviva’s commercial strategy. It has been trying to grow its base of UK customers by offering them a one-stop service for a wide range of financial needs. That seems to be working well to lift revenues.

With its large customer base (almost 5m UK customers hold multiple policies with the firm), a strong brand and deep underwriting experience, I am optimistic about the outlook for Aviva – and its dividend.

I’d happily use this passive income idea

Still, as any insurer knows, the unexpected can happen. Retirement product sales fell in the first half, something I think could continue to happen due to a contracting equity release market.

Pricing is always an important factor in insurance profitability. The past several years have witnessed sharp premium increases across much of the UK insurance market. That could lay the foundations for pricing battles in future, hurting profit margins.

Created with Highcharts 11.4.3Aviva Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

On balance, though, I think the interim results provide further grounds for confidence in the outlook.

Aviva has proven it is willing and able to grow its dividend significantly. I think the share looks reasonably priced and would happily buy some for my portfolio if I had spare cash to invest.

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.

C Ruane 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.

More on Investing Articles

Investing Articles

£20K invested in Tesla stock last April is now worth…

Despite all the bad headlines lately, Tesla stock has put in a storming performance over a 12-month timeframe. Is this…

Read more »

Investing Articles

If a 40 year old invests £600 a month in a SIPP, here’s what they could have by retirement

With no retirement savings at 40, an investor could put £600 a month into a SIPP and grow its value…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

Why hasn’t its 9.9% yield boosted the Phoenix share price?

Phoenix Group has a dividend close to double digits, but saw a weak share price performance in recent years. Christopher…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

With average 10% yields, these mid-cap FTSE shares could supercharge a passive income portfolio

Some of the best passive income gems can be found on the UK's smaller indexes like the FTSE 250 and…

Read more »

A coin being dropped into a piggy bank
Investing Articles

As the Barclays share price tanks 19% in 2 days, is this a great buying opportunity?

As a trade war sends the Barclays share price into a tailspin, Andrew Mackie steps back to look at the…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is Fundsmith Equity still a good choice for a Stocks and Shares ISA in 2025?

Many Britons hold the Fundsmith Equity fund in their Stocks and Shares ISAs. Is this still a good move? Edward…

Read more »

Investing Articles

Nvidia stock is down 24% this year. Time to buy the dip?

Christopher Ruane has been eyeing Nvidia stock as a potential addition to his portfolio for a while. Is a recent…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Down 25% since January, this resilient dividend stock’s catching my eye

Maintaining the UK’s rail, water, and energy infrastructure isn’t the most exciting business. But it has made this a solid…

Read more »