Aviva (LSE:AV.) shares currently have the 12th highest dividend yield in the FTSE 100. Being an insurance giant, it’s not a particularly exciting enterprise compared to disruptive technology start-ups or novel biotechs. But boring can often be lucrative, especially when operations are highly cash-generative.
In a higher interest rate environment, Aviva’s business has been able to thrive, with cash flows heading on an upward trajectory over the last five years. That’s paved the way for lower debt on the balance sheet as well as continuous dividend hikes since 2019. And patient shareholders have been rewarded with a chunky yield along with a 120% capital gain.
The question now is, can Aviva shares continue to climb? And how much income could investors earn from dividends in the future?
Latest projections
The analyst team at UBS have highlighted Aviva as a phenomenal insurance enterprise on track to deliver a 40% return on capital over the next three years. In particular, it highlighted the expected synergies and cross-selling opportunities emerging from the company’s ongoing takeover of Direct Line – advantages that it believes haven’t been fully realised in the stock price.
As such, UBS has placed the share price forecast for Aviva at 675p – around 11% higher than where the stock’s trading today. But what about the dividend?
| Fiscal Year | Dividend Forecast | Forward Yield |
| 2025 | 38.3p | 6.3% |
| 2026 | 41p | 6.7% |
| 2027 | 43.9p | 7.2% |
| 2028 | 47p | 7.7% |
| 2029 | 50.3p | 8.3% |
If the Direct Line acquisition is a success and delivers on expected results, then the dividend could be set to increase significantly over the next four years, reaching as high as 50.3p per share by 2029. If that proves to be accurate, then buying 1,000 Aviva shares today for around £6,100 would generate a passive income of £503 – up from the £357 that would have been paid out in 2024.
What could go wrong?
The forecasts certainly look encouraging. But even the most promising investments carry risks. In the case of Aviva, there are a few threats investors need to keep an eye on. Interest rates can adversely impact the pricing of annuities, while inflation erodes the underwriting margins of general insurance.
At the same time, turbulence within the financial markets can harm the value of its assets under management, potentially compromising its investment income stream. Consequently, regulatory capital reserves could be impacted, adding pressure to Aviva’s financial flexibility.
However, the more immediate threat is a failure to acquire and integrate Direct Line. The deal has been picked out by regulators for a closer review of market competition concerns. Investors will find out on 10 July whether or not the Direct Line acquisition will be approved, delayed, or outright blocked.
If Aviva gets the green light, it will control an estimated 20% of the UK motor and home insurance market – a fantastic catalyst for long-term growth. But if regulators hit the breaks, this loss of opportunity could spark share price volatility while also getting its dividend forecast revised down.
The point is that nothing’s set in stone. But given the potential rewards, these risks may be worth taking. Therefore, investors may want to consider investigating this opportunity further.
