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What Are Aviva plc’s Dividend Prospects Like Beyond 2014?

Today I am looking at the dividend outlook for life insurance heavyweight Aviva‘s (LSE: AV) (NYSE: AV.US) beyond 2014.

Dividends poised to march higher again

Even in the wake of the disastrous 2008/2009 financial crash, Aviva continued to shell out meaty dividends to its shareholders, despite collapsing profits. The company maintained this course even after four years of consecutive earnings pressure, but was finally forced to bite the bullet last March by electing to rebase the dividend and recharge its growth prospects.

City analysts expect this to result in a 22% reduction in the full-year dividend for 2013, to 14.9p per share. However, the firm’s payout outlook is far rosier for this year and beyond, with Aviva expected to raise the dividend 9.4% in 2014 to 16.3p, before initiating an additional 9.8% advance next year to 17.9p.

Forecasters expect this dividend recovery to be underpinned by a sturdy earnings turnaround of 10% and 8% in 2014 and 2015 respectively. And this positive earnings picture helps to construct solid dividend cover for both of these years, registering at a healthy 2.9 times prospective earnings and comfortably exceeding the safety floor of 2 times.

While Aviva’s projected dividend growth through 2015 provides an exceptional omen for payouts over the longer-term, these payments themselves create decent yields of 3.4% and 3.8% respectively, comfortably ahead of the 3.1% FTSE 100 forward average. With earnings in great shape to continue heading northwards, I fully expect dividends to follow suit at a swift pace.

The insurer continues to generate heaps of new business, and saw the value of this rise 12% during the first nine months of 2013 to £572m. With Aviva’s ongoing restructuring programme stripping out underperforming assets, including its Aviva USA subsidiary during October, as well as delivering massive cost savings, the company’s earnings outlook is in great shape to keep on improving.

Aviva is also stepping up its exposure to lucrative emerging regions, where rising income levels and low insurance product penetration provide rich opportunity. Just last week the insurer announced a joint venture with Indonesia’s Astra International to create Astra Aviva Life, giving the British company access to one of the world’s fastest-growing life insurance marketplaces and helping to underpin growth — and with it solid dividend prospects — for future years.

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> Royston does not own shares in Aviva.