My Aviva (LSE: AV.) shares are a core part of my income portfolio, as the insurer has long been a respected and reliable dividend-payer in the UK. However, it hasn’t always been plain sailing. Aviva has occasionally paused or reduced its dividend, most notably during the 2008 financial crisis and more recently, the pandemic.
That’s why I wanted to take a closer look at the three-year forecast to see what I might reasonably expect from this stock in the near term.
Growth expected
Aviva has been paying dividends for over 30 years, with a compound annual growth rate of approximately 2.8%. Currently, the yield stands at 5.7%, but historically, it has reached as high as 7.5%. Encouragingly, it’s increased its dividend every year since the pandemic and analysts expect those rises to continue.
This year, the forecast final dividend looks set to reach 38.5p per share. Looking further ahead, consensus estimates suggest 41p in 2026 and 44p in 2027. Based on today’s share price, that would equate to a yield of 6.13% in 2026 and 6.59% in 2027.
Meanwhile, earnings per share (EPS) are forecast to rise to 55p in 2026 and 61p in 2027, providing healthy coverage for dividends.
Of course, these are only projections. As we learned during the pandemic, unexpected external shocks can derail even the most carefully modelled forecasts. That’s why I think it’s always worth digging deeper to get a full picture of a company before relying on dividend forecasts.
Are Aviva shares worth considering?
Two notable updates this year were Aviva’s £113m buy-in deal with Fenwick’s pension schemes and £134m buy-in deal with Quest UK. These kinds of agreements strengthen its reputation as a leading insurer in the pensions space.
However, weak earnings this year have pushed its dividend payout ratio above 100%. That’s often a red flag, as it suggests dividends are being funded from reserves rather than pure profit. If earnings improve as forecast, the ratio should fall back into a more sustainable range, but it’s something investors need to monitor.
Debt is another factor worth checking. Aviva’s debt-to-equity ratio currently sits at 0.96, which means it’s only just covered by equity. Should unexpected costs or an earnings miss occur, debt servicing could become more challenging. For dividend investors, that risk can’t be ignored.
There’s also the competitive nature of the insurance industry. Rivals like Prudential and Legal & General are all vying for market share, which can pressure margins and profitability.
On the positive side, analysts remain optimistic about the broader insurance sector. An improving equity market and the prospect of lower interest rates could relieve pressure on sales of certain life products. Meanwhile, increased automation and digitalisation are expected to improve efficiency and support premium growth.
My verdict
Overall, I think Aviva looks well placed to keep covering and growing its dividend in the coming years. EPS is forecast to rise steadily, and with dividends set to follow suit, I think it’s a stock income investors should consider.
Of course, no forecast is ever guaranteed, but if Aviva delivers on expectations, the next few years could look promising for those holding its shares.
