Dividends for Aviva (LSE:AV.) shares have risen strongly after they were battered during the Covid-19 crisis. Last year, the total dividend rose 7%, to 35.7p per share.
Encouragingly, City analysts are expecting cash rewards to keep growing over the next two years, as the table below shows.
| Year | Dividend per share | Dividend growth | Dividend yield |
|---|---|---|---|
| 2025 | 37.63p | 5% | 7% |
| 2026 | 40.09p | 7% | 7.4% |
These predictions also mean forward dividend yields on Aviva shares sail above the FTSE 100 average of 3.5%.
However, past dividend hikes aren’t necessarily a reliable indicator of future payout movements. It’s also important to remember that broker forecasts — whether on earnings, dividends, share prices and so forth — can often fall short of the mark.
With this in mind, here’s my take on current dividend estimates for the Footsie company.
On a roll
Aviva’s dividend recovery reflects its strong profitability in recent years and its transformed balance sheet. Through share buybacks and dividends, the company’s delivered a total of £10bn in shareholder returns.
Last year, gross written premiums increased at its general insurance division rose 14% year on year. Operating profit meanwhile, rose 20% to £1.8bn, ahead of forecast.
Aviva’s on a roll for multiple reasons. Its broad product offer across the protection, wealth and retirement sectors provides multiple ways for it to exploit soaring older demographics across its markets, as well as the growing importance of financial planning.
In particular, the company’s bulk annuity business (BPA) — which takes on pension liabilities from company schemes — is enjoying rapid growth — is enjoying rapid growth. Its switch to a capital-light operating model is also paying off handsomely, and the upcoming acquisition of Direct Line will mean capital-light businesses will account for 70% of its portfolio.
This underpins Aviva’s plans for operating profit to reach £2bn by 2026.
Dividend danger?
However, there are dangers to the company’s ambitious plans. Worsening economic conditions in its UK, Irish and Canadian markets could smack sales, while high levels of market competition remains a constant danger. It could also encounter execution problems with its acquisition-led growth programme.
Any such issues could theoretically threaten dividends over the next two years. Predicted payouts for 2025 and 2026 are covered just 1.3 times and 1.4 times respectively by anticipated earnings, leaving little wiggle room if profits disappoint. As an investor, I’d want a reading of 2 times or above.
Having said that, I’m optimistic Aviva’s cash-rich balance sheet could provide a shield against any such dividend danger.
The company’s Solvency II capital ratio fell 40 basis points over the course of 2024, to 203%. But this still remains double the regulatory requirement, and gives the company enough room to keep paying large dividends while also investing for growth.
In great shape
Dividends are never guaranteed, and as we saw in the pandemic, payouts can be cut, postponed, or cancelled at extremely short notice.
But assuming a fresh catastrophe doesn’t come Aviva’s way, I think it’s in great shape to meet dividend forecasts through to 2026 and is worth considering.
