The FTSE 100 index is a great place to screen for income stocks. In fact, the FTSE 100 alone has a forecasted dividend yield of almost 4% for 2022. It shows that the UK market can be a great hunting ground for high yielding dividend stocks.
But I think I can aim a bit higher than the 4% dividend yield on offer from the FTSE 100. Here’s one stock I’d buy and hold for 2022 and beyond as I build my passive income.
A FTSE 100 income stock
The company is Aviva (LSE: AV), the well-known insurance company. It’s undergone a dramatic shift in its strategy in recent times through a corporate restructuring. This has been spearheaded by the current CEO, Amanda Blanc, who was appointed in July 2020.
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The new strategy has been to focus on its key markets in the UK, Ireland, and Canada. Previously, Aviva owned a number of international businesses, but these have now all been sold, raising £7.5bn in the process. The company now says it is “significantly simpler and completely focused on its strongest businesses”.
The bull case
The biggest attraction to me in Aviva shares is the commitment to return at least £4bn of cash to shareholders as a result of the restructuring. In mid-December, the company increased its share buyback programme to £1bn, up from the previous £750m commitment announced in August. I view this as sensible capital allocation from Aviva’s management because the shares look cheap. The forward price-to-earnings ratio is nine as I write today.
In addition to the share buyback programme, City analysts are forecasting a bump up in the dividend in 2022. The yield last year was 5.4%, but this is expected to increase to 6.1%. Of course, forecasts can change based on future developments.
The bear case
Beyond the potential for significant cash returns to shareholders, I still have to be confident in the remaining businesses. This places a heavy reliance on Aviva to develop its remaining core markets in the UK, Ireland, and Canada. Any economic slow-down in these developed countries may impact growth potential, and therefore future dividend payments.
Meanwhile, the Aviva share price saw a huge drawdown during the initial Covid-related market crash in March 2020. The stock almost halved at the time, so there’s a risk of future volatility in the share price due to Omicron, or any new Covid strain.
Should I buy this FTSE 100 stock?
All things considered, I’m going to add Aviva shares to my portfolio. The new CEO has executed the restructuring of the company extremely well so far, and has already committed to return a huge £4bn of cash to shareholders. This, to me, is an ideal income stock. Now that the management team can focus on its core markets, I also think there’s growth potential in the share price in the months ahead.
