1 Reason I Wouldn’t Buy Aviva plc Today

Today I am looking at why Aviva (LSE: AV) (NYSE: AV.US) may fail to stoke the fires for income-hungry investors.

Payouts lag the competition

To say that Aviva has been a headache for dividend chasers in recent times would be somewhat of a understatement. The life insurance leviathan has been forced to scythe the full-year payout for two years on the bounce, from 26p in 2011 to 19p the following year and again to 15p in 2013, in the midst of earnings woes and extensive restructuring following the 2008/2009 financial crisis.

But, promisingly, the City’s number crunchers expect the business to get dividends rolling from this year onwards, boosted by a return to Cashsmashing earnings expansion. Indeed, Aviva is predicted follow up last year’s return to growth — earnings of 22p per share marked a huge departure from losses of 11.2p in 2012 — with rises of 114% and 10% in 2014 and 2015 respectively, to 47.1p and 51.9p.

On the back this improved earnings performance, Aviva is expected to lift the payment to 16.6p this year — marking an impressive 11% on-year improvement — and dividend growth is estimated to rev still higher next year, with an 15% rise to 19.1p currently mooted.

Still, for savvy income hunters I believe that better medium-term dividend prospects can be found elsewhere. Aviva’s projected payment for this year creates a modest 3.3% yield, bang in line with the current FTSE 100 forward average but which badly lags its sector peers. By comparison the complete life insurance sector carries a prospective average of 4.6%, a figure which even Aviva’s additional hike next year, which produces a 3.8% yield, fails to get near.

Of course Aviva’s anticipated return to dividend growth from this year is good news for shareholders. And with new business inflows continuing to surge across the globe — these advanced 9% during January-June to £453m — and aggressive streamlining and cost-cutting primed to continue, I believe the firm is in terrific shape to continue doling out meaty annual dividend increases in coming years.

But in the meantime I reckon that more lucrative payout picks can be found elsewhere.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.