After a blow-out set of results earlier this month, Aviva (LSE: AV.) shares are attracting the attention of both growth-oriented investors and passive income seekers. As analysts queue up to upgrade the insurance giant’s prospects, I’m looking to lock in an attractive yield for the long-term.
Dividends
Its stated policy is to grow the cash cost of the dividend by around 5% per annum. However, a combination of an excellent set of results, as well as share dilution following the buyout of Direct Line, meant it was able to raise the interim dividend by 10% to 13.1p.
For a forward dividend yield calculation, if I assume that the final dividend is increased by 5% from this new level, then for the full year I expect a dividend per share of 38.1p — a yield of 5.7%.
If an investor was looking to target a yearly passive income of £1,000, they would need to buy 2,625 shares. At a share price of 672p that makes for an outlay of £17,600.
Someone with that much money to invest would probably want to diversify their holdings. But reinvesting dividends and buying regularly by ‘pound cost averaging’, reaching that £1,000 target is eminently doable.
Investment proposition
One of the primary reasons for the transformation of Aviva has been a greater focus on its capital-light businesses of General Insurance, Health and Wealth. General Insurance may be its largest unit, but it’s in Wealth where I see the biggest growth drivers.
A move from defined benefit (DB) to defined contribution (DC) pension schemes by employers has been accelerated by auto enrolment. More than that, an ageing population has resulted in a significant pension savings gap. In addition, there’s the incoming major intergenerational wealth transfer.
Over the next 10 years, the UK wealth market is expected to grow at a compound annual growth rate (CAGR) of 10% to £4.3trn.
If I just zoom in on workplace pensions, the opportunity is enormous. Since auto enrolment was introduced 10 years ago, the market has tripled and is expected to triple again by the early 2030s. Regular contributions into a workplace pension scheme is as near to a guaranteed cash flow as one can get. Last year, the business won 477 new corporate pension schemes.
Interest rates
Contributing to an improving bottom line have been elevated interest rates. Since Covid, general insurance premiums have sky-rocketed. Aviva has also witnessed a significant uptick in annuities at retirement, up 29% so far in 2025.
One significant risk now is that as interest rates begin to decline, so too could the cash flows. So far this year, car insurance premiums across the industry have declined 6%, on average. Further, the attractiveness of annuities for retirees may begin to wane.
Nevertheless, the business has set itself significant growth ambitions. By 2032, it wants to grow assets under management at a CAGR of 10%. It’s also aiming to quadruple (from a 2022 baseline) Wealth’s contribution toward group profit.
With four in 10 UK adults owning some sort of policy with Aviva, that speaks volumes for brand awareness. I remain bullish over the long-term and will continue to add to my position when finances allow.
