One of my main focuses as an investor is income generation. I don’t just look for a stock with a high dividend yield, but also try to find sustainable ideas for years to come. Despite a dividend cut during the pandemic, Aviva (LSE:AV) has been a reliable dividend payer over the past decade. So should I now buy Aviva shares as a top stock in the FTSE 100?
Why I like the company
When I look for a top income share, I’m mainly focused on the financials. I want to see good levels of cash flow, high profit margins and a good amount of money left over to enable both dividend payments and retained profit to help future growth.
Aviva ticks a lot of these boxes for me. In the latest full-year report, it highlighted the 22% jump in cash remittance versus 2020. It also saw record net flows to its Savings and Investment division of £10bn. This helped to deliver an IFRS profit of just over £2bn for the year.
As a result, the dividend per share rose by 5%, with an estimated 40% jump for 2022 due to the share consolidation measures being taken.
I also like Aviva when I consider the uncertain outlook for the UK stock market. If I compare the retirement and savings products offered by the company to a high-growth tech firm or a high street retailer, I feel a lot more comfortable owning stock in Aviva! The nature of the business should allow it to be fairly insulated to a downturn. Clearly, it could still lose ground in the event of a recession, but I think this would apply to virtually all FTSE 100 stocks.
Some risks with the shares
Another important factor when considering if an income stock is the best in the index is the share price performance. It’s pointless if the dividend yield is high only to have the share price fall heavily.
For Aviva, the current dividend yield is 5.31%. Over the past year, the share price has fallen by 3%. This isn’t a disaster, but at the same time I’m not getting any additional return from share price appreciation. It’s not like I’m being overly greedy here. Anglo American has a dividend yield of 6.98%, with the share price up 22% in the past year!
The share price could also be impacted going forward by the new streamlined business approach. It recently sold eight non-core businesses to focus on the UK, Ireland and Canada. Only time will tell if this was a smart move or not. If it wasn’t, then the lack of market share and shrinking geographical diversification could be negative for the company over the next year.
I think that Aviva is a good buy for my dividend portfolio, so I’m considering buying some stock in the business. However, I don’t currently think it’s the best income stock in the FTSE 100, based on the share price performance and recent transformation.
