Have £1,000 to invest? Aviva is a FTSE 100 dividend growth stock that could help you retire early

Aviva plc (LON: AV) could deliver impressive income performance versus the FTSE 100 (INDEXFTSE: UKX).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Having fallen by 5% in the last year, the Aviva (LON: AV) share price may not be an obvious choice for income investors. After all, the stock does not seem to be popular among investors, and it would be unsurprising for its valuation to underperform the FTSE 100 in the near term.

However, with the company having put in place what seems to be a sound business model following major restructuring in recent years, the prospects for the stock seem to be improving. As such, now could be the right time to buy it from an income perspective, with a smaller dividend share that reported positive news on Tuesday also offering investment potential.

Growth potential

The smaller company in question is property investor and developer Town Centre Securities (LSE: TOWN). It released news of an acquisition on Tuesday, purchasing The Cube in Leeds for £12m. Completion is set to take place in October, with the purchase due to be funded from the company’s existing resources and planned disposals. The deal represents an initial yield of over 12.5% on the passing income, although the yield will reduce to around 9% after lease expiries in 2019 and 2020. Still, this remains a relatively enticing level for a city-centre asset.

With Town Centre Securities having a dividend yield of 4.3%, it seems to offer income investing potential for the long term. Although the company is UK-focused and could experience some uncertainty in the near term due to Brexit, its acquisition pipeline means that it may be able to capitalise on low valuations across the commercial property sector. As such, and with a price-to-book (P/B) ratio of 0.8, it seems to offer an impressive investment outlook.

Improving business

Aviva’s income potential also appears to be impressive. The company recently announced that it has been able to generate excess capital that is expected to be deployed over the next two financial years. So far, this has helped to reduce the company’s leverage, while a portion of the capital has been earmarked for acquisitions. This could help to further diversify the company’s operations and may lead to improved growth performance over the medium term.

Due in part to its disappointing share price performance, Aviva has a dividend yield of around 6% at the present time. This is expected to rise to around 6.8% next year, with dividend growth of 13% forecast in the next financial year. Beyond 2019, further dividend growth could be ahead, with the potential for additional excess capital generation as well as a more generous payout ratio.

With Aviva having a price-to-earnings (P/E) ratio of around 10, the stock seems to offer a wide margin of safety. Alongside its international exposure, improving business model and rising dividend, this could help it to outperform the FTSE 100 in the long run. It seems to offer a strong income investing opportunity at the present time.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Aviva. 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.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »