I think now is the perfect time to consider buying high-yield FTSE dividend shares like Aviva

Harvey Jones has been loading up on FTSE 100 dividend shares over the last year or so, waiting for them to swing back into fashion. There’s one he’s missed though.

| 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: Getty Images

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.

After years of being overlooked, UK dividend shares are starting to look like unmissable bargains, to my eyes. 

Investors have shunned the FTSE 100 as they chase high-flying US tech stocks, but that dynamic could be about to shift. With interest rates expected to fall this year and next, high-yielding dividend stocks may steadily regain their appeal.

Lately, investors have preferred the safety of cash and bonds. These have offered more attractive returns due to rising interest rates, with little or no capital risk. 

Should you invest £1,000 in Bunzl Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Bunzl Plc made the list?

See the 6 stocks

However, as further UK interest rate cuts loom, the yields on these fixed-income investments may shrink, making dividend stocks more compelling.

Aviva shares have outperformed their peers lately

At the same time, the US stock market, particularly its tech-heavy Nasdaq, has surged to record highs. But as Wall Street works out what to make of shock Chinese AI entrant DeepSeek, that may change. We’ll see. Investors haven’t fully absorbed that shock yet.

But with S&P 500 valuations stretched, we could see a shift back towards unloved and undervalued UK stocks. The FTSE 100, with its rollcall of steady dividend payers, may finally get the recognition it deserves.

FTSE insurers have struggled lately, but there’s one notable exception. Insurer and asset manager Aviva (LSE: AV). Its shares have climbed 18% over the last year. Over five years, they’re up more than 30% (with dividends on top). Despite these gains, they look reasonably valued.

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

The Aviva share price trades at a price-to-earnings (P/E) ratio of less than 14, slightly below the FTSE 100 average of around 15. That’s not dirt cheap, but it’s pretty good for a company with a strong market position and solid financials.

It currently offers a trailing yield of 6.5%, but analysts forecast this will rise to 6.9% in 2025 and an impressive 7.4% in 2026. 

Naturally, there are risks. Forecast dividend cover’s thin at just 1.4. While not dangerously low, it I’d like a bigger cushion against potential earnings fluctuations. Aviva’s financial strength reassures me. Its Solvency II shareholder cover ratio stands at a robust 195%, reflecting a strong balance sheet and capital position.

Worth considering as a long-term hold?

The company’s Q3 2024 results, published on 14 November, showed general insurance premiums surging 15% to £9.1bn. Wealth net flows also increased 21% to £7.7bn, reflecting strong demand for Aviva’s investment products. 

Importantly, the company’s operating profit’s on track to hit £2bn in 2026, reinforcing its long-term growth potential.

The share price could retreat in the short term. Aviva operates in a mature and competitive market at a difficult time. Consumers are struggling and this could hit insurance premiums. Stock market volatility could punish its asset management arm.

So I wouldn’t expect wonders. Any investor considering Aviva should only buy with the aim of holding for years, and ideally decades, to give their dividends time to compound and grow.

I don’t hold Aviva and won’t buy it. That’s purely because I already have a big stake in two FTSE 100 rivals, Legal & General Group and Phoenix Group Holdings. Both have trailed Aviva badly since I bought them. I’m crossing my fingers they’ll put that right.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

Harvey Jones has positions in Legal & General Group Plc and Phoenix Group Plc. 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

What’s happening to the Rolls-Royce share price now?

The Rolls-Royce share price has taken a knock from US trade tariffs, but it's still gained more than 50% in…

Read more »

Investing Articles

10 UK shares that are 50% or more off their 52-week highs

These UK shares have been hit hard. And Edward Sheldon believes there could be some opportunities for those with a…

Read more »

Man smiling and working on laptop
Investing Articles

Could IAG’s share price surge over the next year? These analysts think so!

IAG's share price has sunk, reflecting growing concerns over the impact of trade wars on airline profits. Is this a…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

£10,000 invested in Apple shares last week is now worth…

Apple shares are down 18% over the past week. It’s a truly phenomenal downward movement, but investors may want to…

Read more »

Investing Articles

Are shares like Tesco a safe haven for investors?

Christopher Ruane sees a lot to like about Tesco shares. But does he see them as a safe heaven in…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

The 2025 stock market sell-off could be a once-in-a-decade opportunity to build wealth in an ISA

If a long-term investor has cash sitting in an investment ISA, now could be a good time to put some…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Is now a good time to start buying shares?

Stock market turbulence can be alarming, but it can also offer opportunity. Our writer considers whether now could be the…

Read more »

Investing Articles

Hunting for passive income? These falling insurance giants offer 10% yields

The UK insurance sector is typically a good place to look for attractive dividend yields. Dr James Fox details two…

Read more »