When I look at the Aviva (LSE: AV.) share price, I find it hard to believe this stock is among the FTSE 100‘s biggest dividend payers.
The shares have been picking up since September, but the forecast dividend is still at a fat 7.4%. What’s wrong with the big City investors, don’t they want a slice of the cash?
What do they say?
First though, what does the range of broker forecasts say?
The 7.4% comes from Yahoo! Finance, with Google Finance on 7.5%. MarketScreener has the 2023 forecast at 7.7%.
And that’s a fairly close range. There are some FTSE 100 dividend stocks where the various forecasters are all over the place. So this boosts my confidence a little.
But never mind the brokers for now, what does the company say about its dividend prospects?
Third-quarter strength
In a Q3 update, chief executive Amanda Blanc said: “I am extremely confident that Aviva will continue to deliver more for shareholders, and we reiterate our guidance for a total dividend of c.33.4p for 2023, and further regular and sustainable returns of surplus capital.”
Ah, that’ll be why the City brokers are all so close in their guesses then.
That 33.4p would provide a yield of 7.8% on the share price, at the time of writing. But forecasts aren’t updated every day, and the figures they show can be a bit out of date.
I do like it when firms tell us how much cash they think they’ll be able to hand over each year. It means I can work it out myself.
Next few years
Analysts show the Aviva dividend growing in the next few years. If they’re right, it could reach 8.5% or so by 2025.
So why isn’t everyone buying? What’s the risk? Well, for one thing, Aviva posted an earnings loss in 2022, even though it still paid a good dividend.
We should see a return to positive earnings this year, which is good. But a bit of caution might still be an idea.
If it all comes good, it looks like we’d still have at a price-to-earnings (P/E) ratio of 14 for 2023, which isn’t that cheap.
It could drop to under 10 by 2025. But a lot could happen by then.
What might change?
So Aviva shares might look like they’re valued fairly, and not a screaming buy.
But I still think these dividend forecasts could be the driver for a share price climb. What do I think could trigger a change?
Insurance stocks can be very risky in tough times. The sector has shown a lot of cyclic volatility over the years. So the first thing I think we need is a solid 2023, at least in line with current expectations. And maybe even a good first half next year.
I’ll have my eyes peeled for Aviva’s 2024 outlook, for sure.
Interest rates
Even if that’s all good, I think we might need to see some interest rate softening for the market to turn bullish towards Aviva. It must happen some day, mustn’t it?
