Aviva (LSE: AV.) shares look set to pay out out 7% in dividends this year, according to broker forecasts.
The board was so pleased with how last year went that, at FY results time, it told us “we are announcing a new £300m share buyback programme, upgrading our dividend guidance to mid-single digit cash cost growth“.
That held good at H1 time this year, with the interim dividend lifted by 7%. And CEO Amanda Blanc opened with: “Sales are up. Operating profit is up. The dividend is up. Our plan to deliver more for customers and shareholders is working really well.”
Dividend forecasts
The Aviva share price still shows a weak five years, though. So how might dividends go in the next five? Let’s take a look at the forecasts for 2024 and beyond, plus 2023 results.
In the table below, I show analyst consensus forecasts for earnings per share (EPS) and dividends up until 2026. And I’ve stretched that for two more years by assuming ongoing growth of 5% for EPS and dividends. You can’t get much closer to mid-single digits than that.
I’ve also worked out the implied price-to-earnings (P/E) ratio for each year, based on a share price of 484p at the time of writing.
| Year | Dividend | Change | Yield | EPS | Cover | P/E |
| 2023 | 33.4p | +7.7 | 6.9% | 37.3p | 1.1x | 13.0 |
| 2024 | 35.0p | +4.8% | 7.2% | 43.2p | 1.2x | 11.2 |
| 2025 | 38.0p | +8.6% | 7.9% | 49.1p | 1.3x | 9.9 |
| 2026 | 41.2p | +8.4% | 8.5% | 52.9p | 1.3x | 9.1 |
| 2027 | 43.3p | +5.1% | 8.9% | 55.5p | 1.3x | 8.7 |
| 2028 | 45.4p | +4.9% | 9.4% | 58.3p | 1.3x | 8.3 |
Looking good
At first sight, Aviva looks like a company that should reward investors really well in the next five years. But there’s a few key cautions here.
One is that a dividend can never be guaranteed. If anything goes wrong, it could be cut or even suspended altogether. And finance and insurance firms are among the riskiest on that score.
Aviva slashed its 2019 dividend in response to the pandemic crisis, for example.
One other issue is that the insurance business can be notoriously cyclical. Cash flow can peak when the going is good. But then, tougher economic times can squeeze that flow.
Valuation
That applies to a stock valuation too. The P/E values in the table above look very attractive compared to the FTSE 100 average of around 14-15.
But it’s when earnings are in the upwards part of a cycle that the P/E looks good. And if the business should tip into a down trend, the P/E can quickly rise and not look so great.
With those cautions, I think Aviva is well worth considering for dividend investors who take a long-term view.
And by that, I mean a lot longer than the five-year horizon I’ve examined here. I’m talking about at least 10 years, ideally more.
Will I buy?
Over the very long term, I see this sector as a solid cash cow. And the only reason I’m not buying Aviva shares now is that I already did.
