How Strong Are Aviva plc’s Dividends?

Dividends at Aviva plc (LON: AV) are on the rise again.

| 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.

AvivaIf you’re looking for a tale of how dividends can go wrong, look no further than Aviva (LSE: AV) (NYSE: AV.US).

During the crunch years from 2009, Aviva still managed to keep its dividend rising steadily — 24p in 2009, then 25.5p in 2010 and all the way to 26p by the following year. And with the share price dipping, the 2011 dividend yielded 8.6%!

The trouble was, earnings per share were falling, and in 2011 EPS only contributed 11.1p to the 26p paid out as cash. But some still thought the dividend would last, and in fact the first-half payment for 2012 was held at the same 10p as a year previously.

Should you invest £1,000 in Barclays right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barclays made the list?

See the 6 stocks

Not sustainable

But for the full year, the company crashed to a loss, and in its results announcement told us that its priorities were “cashflow and debt reduction” — and the final dividend was slashed from 16p to 9p, taking the total payment down to 19p. Chief executive Mark Wilson said “The rebasing of the dividend […] is about giving certainty to shareholders, reducing debt, and putting Aviva in a sound position for the future“.

The folllowing year, 2013, saw Aviva’s dividend reduced further, to 15p per share for a yield of a much more modest 3.3% — but with earnings back on the up, it was at least covered 1.5 times.

What’s next?

So what does the future hold for dividends? Well, for 2013 the firm told us that cashflow was strengthening, especially in its trouble Irish and Italian operations, and that “all our turnaround businesses are now remitting cash to group“.

And by the time the first quarter of 2014 ended, we heard that “Aviva’s overall performance in the first quarter was reassuringly calm and stable“, and those are nice words to hear about the insurance business.

According to current forecasts, the dividend should be rising again this year, by 11% to around 16.6p. The share price has been climbing, standing at 519p as I write, and so the yield would be around 3.2% — marginally above the FTSE 100 average.

Looking safe again

But the key thing is that EPS should be rising strongly again, with the forecast 47p covering the expected dividend 2.8 times. And if the City folks have got it right, we could see the dividend up another 14% to 19p by 2015, to yield 3.7%.

It does look like the bad days are over for Aviva, and the rebasing of the dividend was probably the best thing the company could do. The annual cash handout now looks very solid, and we should hopefully be seeing sustainable rises over the next few years.

Pound coins for sale — 31 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Alan does not own any shares in Aviva.

More on Investing Articles

Investing Articles

Up 30% in weeks, does the BAE Systems share price still offer value?

The BAE Systems share price has been on a tear over the past couple of months. This writer sees limited…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Hunting for shares to buy as the market trembles? Remember this!

After a choppy week in global stock markets, our writer goes back to basics in his hunt for bargain shares…

Read more »

Investing Articles

3 simple principles to help build wealth in an ISA

As a new tax year opens up new ISA allowances for many investors, our writer shares a trio of things…

Read more »

Investing Articles

US trade tariffs: what they could mean for UK shares like Ashtead, Compass Group, and Experian

US trade tariffs continue to rock global markets, and the UK is no exception. Our writer considers how a new…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Dividend Shares

The Trump slump has smashed these FTSE 100 shares!

After a rough week for US and UK shares, investors have been shaken. But now these FTSE 100 stocks have…

Read more »

Investing Articles

£10,000 invested in Rolls-Royce shares 5 years ago is now worth…

Rolls-Royce shares have been on fire since April 2020. Part of this is the result of pandemic restrictions lifting, but…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

£10,000 invested in Tesla stock at its peak in 2024 is now worth…

Over the last few months, Tesla stock has lost nearly half its value. Here, Edward Sheldon explores a few takeaways…

Read more »

Investing Articles

Is the S&P 500 heading for an epic stock market crash?

Our writer shares his thoughts on a very crazy time for the S&P 500 and the wider stock market. How…

Read more »