I originally bought Aviva (LSE: AV) shares as a key part of my passive income portfolio. It was designed to deliver an annual dividend yield of 7%+.
This figure is currently more than double the average FTSE 100 rate of 3.2%. It is also significantly higher than the 4.7% ‘risk-free rate’ (the 10-year UK government bond yield). This is an important benchmark to me, as I want compensation for taking the extra risk involved in share investing.
However, although averaging over 7% from 2022-2024, Aviva shares now yield 5.4%. This is because a stock’s yield moves in opposite directions to its price, given the same annual dividend.
Such a rise in the share price does not benefit me at all, unless I sell the stock. But this defeats the purpose of such a holding, which is to generate high dividend income over the long term.
Consequently, I decided to take another look at the stock to see what its dividend yield outlook is. If it is not set to rise, then I might as well sell it and invest the proceeds in something with a much higher dividend yield.
So what’s the dividend yield outlook?
Aviva paid a total dividend last year of 35.7p, which gives the present 5.4% yield on its £6.64 share price.
However, analysts forecast the dividend will increase to 38.6p this year, 41.5p next year, and 44.7p in 2027. This would generate respective yields of 5.8%, 6.2%, and 6.7% in those years.
The rising trend in yield and the fact that the last of these is very close to my 7% minimum is reassuring. However, I need to know it is supported by solid company fundamentals. These should be reflected in substantial earnings growth.
Fundamentals and earnings growth
Aviva’s recent results look very solid to me. Full-year 2024 numbers released on 27 February saw operating profit jump 20% year on year to £1.767bn. Sales from its insurance, wealth, and retirement business climbed 22% to £43.5bn while general insurance premiums rose 14% to £12.2bn.
As a consequence, it raised its annual dividend by 7% to the aforementioned 35.7p.
In its 14 August H1 2025 results, operating profit recorded another big jump — of 22% to £1.068bn. Insurance, wealth, and retirement business sales increased 9% to £21.5bn, and general insurance premiums were up 7% to £6.3bn.
A risk here is any further surge in the cost-of-living crisis that could prompt customers to cancel policies. However, analysts forecast that Aviva’s earnings will grow a strong 18.8% a year to end-2027. This should prove a very powerful engine for growth.
How much passive income can be made?
Another £20,000 invested in Aviva shares yielding 6.7% would make me £19,012 in dividends after 10 years.
This also incorporates the idea of the dividends being reinvested back into the stock – known as dividend compounding.
After 30 years on the same basis, this figure would rise to £128,434. Including the £20,000 invested, the holding would be worth £148,434 by then. And that would generate an annual passive income (from dividends) of £10,390 at that stage.
Given this forecast, based on strong projected growth, I am happy to keep my Aviva shares. I also think them worthy of other investors’ consideration.
