Holding dividend stocks has provided me with an excellent passive income down the years. It’s given me more money to invest to grow my portfolio. When I retire, I’m expecting dividend-paying shares to help me enjoy a comfortable lifestyle, supplementing my State Pension.
The recent stock market correction’s boosted my chances of making a tidy second income. Why? It’s supercharged the dividend yields on many top stocks, giving me more back in dividends for every pound I invest. That market dip’s also meant many great UK shares look cheap based on other metrics.
One company that stands out right now is Aviva (LSE:AV.). It’s a FTSE 100 stock that’s already provided me with brilliant returns, through a blend of share price gains and passive income. And I’m considering adding more of its shares to my portfolio.
6.3% yield… and rising
Let’s first get down to dividends, which is probably the main reason you’re here. Its dividend yield has averaged 6.9% during the last 10 years. Today, its yield for 2026 is 6.7%, just below that historical average. But that’s still above the FTSE long-term average of 3%-4%. And for 2027, the dividend yield marches to 7.2%.
Aviva shares don’t just have a reputation for their big yields. They’ve also become known for rapid dividend growth, with annual payouts soaring at a compound annual growth rate of 13.4% in the last five years. Over a decade, the rate of expansion is still impressive at 6.6%.
But the past isn’t always a reliable guide to what will happen. So how robust are current dividend forecasts?
Cash machine
In my view, they’re looking rock solid though, of course, nothing’s guaranteed. Those expected dividend hikes this year and next are underpinned by Aviva’s resilient business model. The company generates predictable cash flows from premiums, and especially in its vast general insurance division, where consumer demand’s stable even in downturns.
That’s not all. With a growing focus on capital light businesses, it has more financial flexibility to support large and growing dividends. Today, it sources roughly 70% of operating profit from units with low capital requirements.
As of December, Aviva’s Solvency II capital ratio was 180%. That was down from 203% the year before, but still towers above the regulatory target of 100%. This gives the company’s dividend forecasts extra strength, while allowing it to keep investing for growth.
A cheap dividend stock
So what are the risks to Aviva’s dividends? A protracted conflict in the Middle East could push up inflation and sap economic growth. In this climate, consumer demand for the firm’s cyclical products could drop, impacting cash flows. On balance though, I’m confident the FTSE share can hit those huge near-term dividend targets, thanks to those vast cash reserves.
Currently, Aviva shares trade on a sub-1 forward price-to-earnings growth (PEG) ratio, of 0.1. Combined with those enormous dividend yields, I think it’s a top dividend stock to consider.
