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One Reason I’d Buy Aviva plc Today

Today I am looking at why I consider Aviva (LSE: AV) (NYSE: AV.US ) to be an exciting dividend play.

An exceptional income selection

With the consequences of the 2008/2009 financial crisis now firmly behind it, and a consequently more streamlined business well positioned to latch onto surging demand in mature and emerging regions alike, I believe that Aviva is a terrific stock pick for those seeking stocks with exceptional dividend prospects.

Investor confidence in plump long-term rewards were given a shot in the arm today with news that Aviva plans to double annual excess Avivacashflow by the close of 2016, to some £800m. As part of the firm’s ongoing restructuring drive, Aviva also plans to drive the operating expense ratio to under 50% within the next two years, down from 54% as of last year.

The company has fallen foul of dividend seekers in recent years, with consistent earnings pressure forcing the annual payout to 19p per share in 2012 from 26p in the previous year. And a further cut to 15p was initiated last year as Aviva elected to rebase the dividend.

But the company is expected to ratchet up shareholder payouts from this year onwards, underpinned by stratospheric earnings expansion — the London-based firm is expected to punch growth of 112% this year alone, with a further 11% improvement pencilled in for 2015.

As a result, Aviva is anticipated to raise the full-year payout 9% this year to 16.4p per share, with an additional 14% advance chalked in for next year to 18.7p. And bumper dividend coverage for this year and next should boost investor confidence in these projections, with a reading of 2.8 times prospective earnings through to the conclusion of next year flying ahead of the security benchmark of 2 times.

For the current 12-month period, Aviva’s dividend yield of 3.1% falls short of not only a forward average of 3.2% for the FTSE 100, but also significantly lags a corresponding figure of 4.7% for the entire life insurance sector. Still, 2015’s predicted payment thrusts the yield much higher to 3.6%.

Bolstered by today’s cash reserves plan, I believe that investors can expect Aviva’s yields to continue shooting higher. With new business continuing to surge across the globe, and extensive cost reductions ready to copper-bottom meaty earnings growth, in my opinion the insurer is a terrific pick for those looking to latch onto an exciting income play.

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> Royston does not own shares in Aviva.