The FTSE 100 is jam-packed with so many top dividend stocks that I’m having difficulty choosing my next purchase. Insurer Aviva (LSE: AV) has been on my watchlist for months now, so is it time I finally took the plunge?
Aviva looks hugely tempting. It yields 6.41%, which is a fine rate of income. No savings account can match it. The shareholder payout is covered 1.5 times by earnings, so it looks pretty solid too.
A really solid dividend stock
Aviva shares also look cheap. They trade it just 10.5 times earnings, well below the 15 considered fair value. Also, they have trailed the FTSE 100’s dazzling recent recovery.
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The index as a whole has jumped almost 20% since early October, hitting an all-time high on Friday. Yet over the same three-month period, Aviva shares edged up just over 7%. So I haven’t missed out if I buy today.
Aviva shares trade just 7.3% higher than a year ago, but they are down 9.2% measured over five years. So why don’t I dive in with both feet?
One thing holding me back is that I have owned Aviva before, some nine or 10 years ago. The shares looked cheap then too, as I recall. The yield was around 5% or 6%, just like it is today.
Aviva has been through a lot since then, with latest chief executive Amanda Blanc pulling out of overseas markets, such as Italy and France, to focus in its core operations in the UK, Ireland and Canada.
Her aim was to “increase Aviva’s financial strength, remove significant volatility and bring real focus to the group”. Yet despite all her hard work, the share price has scarcely moved. At today’s 444p, it stands at 2014 levels. Roughly when I sold it.
Income isn’t everything
I’ve missed out on a lot of dividends in that time, but no growth. Blanc’s retrenchment may have brought focus, but it also feels like an admission of defeat. It limits Aviva’s horizons, removing any illusion that this will ever be a growth stock. Especially given the state of the UK economy.
As Britons feel poorer, they will struggle to invest in pensions, or buy protection. A house price crash could hit demand for Aviva’s equity release products. Although that could cut both ways, as the cost-of-living crisis makes pensioners feel poorer and more likely to unlock the capital in their homes to raise spending money.
Aviva remains a “robust and resilient” operation in its own words, with its capital and liquidity positions withstanding last year’s volatile conditions. It could benefit from improved sentiment when stock markets bounce back as well.
Aviva is looking to pay a dividend per share of 31p for 2022, rising slightly to 32.5p for 2023, with share buy backs on top. It remains a steady, if dull, dividend stock. I can’t see many arguments against buying it, I’m just not that excited about buying it either. I suspect I sold last time because it bored me.
Aviva is on my watchlist. I suspect it might just stay there.
