If you’re worried about whether the UK State Pension will prove inadequate when you eventually retire, then you probably won’t be surprised to hear that you’re not alone.
Such is the scale of Britons’ tension over this subject that my Foolish colleagues have been busy recently describing a number of ways that you can supercharge your retirement income. And I’ve taken the opportunity here to describe a FTSE 100 share I’m confident could make you a fortune by the time you’re about to ditch the day job.
Given the rate at which Aviva (LSE: AV) is generating oodles of excess capital, I’m convinced the insurance giant could prove to be masterstroke in helping you to retire in luxury.
The work the company has undertaken to mend its balance sheet has been remarkable. And its capital surplus, under Solvency II rules, jumped £900m last year to stand at £12.2bn as of the end of December.
Significant disposals have formed a key part of Aviva’s ‘cash flow plus growth’ strategy. These capital-building measures have continued with the sale of its Cajamurcia Vida and Caja Granada Vida joint ventures in Spain, alongside its 50% holding in Pelayo Vida, marking the company’s exit from the Iberian market.
Aviva now has what it describes as “significant excess capital” and, in May, launched a £600m share buyback, in line with its target of a £500m-plus sum for share repurchases, special dividends, or liability management.
What’s more, the FTSE 100 firm’s handsome cash generation is likely to keep dividends at inflation-smashing levels for a lot longer, too.
A 29p per share dividend is forecast for 2018, according to City analysts, up from 27.4p last year and yielding an exceptional 5.9%. Furthermore in 2019, an even juicier 32.6p payout is envisaged, meaning that the yield barges through the 6% barrier to an eye-popping 6.6%.
Investors can have confidence that Aviva should be able to meet these lofty projections, too. Anticipated dividends are covered by predicted earnings around 2 times over through to the close of next year, bang on the widely-accepted security watermark. And of course, Aviva’s rock-solid balance sheet gives these estimates further credence.
Still, on the subject of earnings, it’s no surprise either that the number crunchers are expecting the insurer’s bottom line to keep growing at quite a spirited rate.
Its dominance of the UK insurance market allowed it to print a 13% improvement in operating profit here in 2017, to £2.2bn. And the strength and depth of its product lines should facilitate further hefty earnings growth in the years ahead. But this is not the only reason to be optimistic as profits sail higher across its overseas divisions, while Aviva doubles down on the digitalisation of its business.
And so profits advances of 64% and 8% are predicted buy the City for 2018 and 2019, respectively. If this wasn’t enough, current estimates also make Aviva an exceptional value pick — it carries a forward P/E rating of 8.7 times as well as a mere corresponding PEG multiple of 0.1.
There’s plenty of reason to consider Aviva an exceptional big-cap to buy currently. But it isn’t the only FTSE 100 stock that could make you a pretty penny in the years ahead, of course.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.