Insurance is all about trying to prepare for the unknowable. Insurer Aviva (LSE: AV) already has a juicy 7.4% dividend yield. But, like any company, its shareholder payout is never guaranteed to continue at the current level. Looking at the Aviva dividend forecast, might the share make my 2024 shopping list?
Aiming to keep going
Although dividends are never guaranteed, that does not mean businesses do not work hard to try and achieve a certain goal.
In the case of Aviva, for example, the business has a stated policy of aiming for a sustainable dividend.
So by declaring a 31p per share dividend last year, for example, the FTSE 100 insurer was effectively signalling that it expected to be able to maintain the payout at that level down the line.
Even better, the most recently declared dividend (the interim one) grew 8% compared to the prior year.
Business outlook
However, having a goal is one thing. Managing to achieve it is another. I think Aviva has a lot going in its favour that could help it make the sorts of profits it needs for the dividend to remain at its current level, or indeed grow.
Demand for insurance is high and tends to be pretty resilient. In many cases, insurance is something businesses and private householders shell out on, even when money is tight.
Aviva has well-known brands and long, deep experience in every aspect of the insurance market. Indeed, it can trace its routes to the 17th century.
The past few years have seen the business slim down its sprawling empire and focus on its core business. I think that could help it improve profit margins over the long term and also means it can focus management attention on markets where it has critical mass.
In its most recent trading update a couple of months ago, the company expressed confidence in its outlook and said it was on track to exceed its medium-term targets.
Possible flies in the ointment
That does not mean there are no risks however. As all underwriters know too well, there are risks facing even the best run businesses.
Unexpectedly strong storms could push up the cost of settling claims, for example, eating into profits. Competitors could try to gain market share by reducing premium costs, posing a risk to industry profitability.
Dividend outlook
But even considering those risks, I am upbeat about the Aviva dividend forecast. The business says it expects to pay a total dividend of around 33.4p for its current financial year. That equates to a 7.8% prospective dividend yield if the firm delivers.
Aviva has also said it expects the cash cost to grow by a low-to-mid single-digit percentage annually after that. That does not mean the dividend per share will grow by that much. That depends on whether the share count remains the same. For example, buying back shares could reduce it while issuing new ones to employees might increase it.
But based on that estimate and its forecast, my Aviva dividend forecast for the coming year is a percentage increase in the mid-single digits in the annual payout.
If I had spare cash to invest, I would be happy buying these high-yield income shares for my portfolio.
