Aviva (LSE: AV.) released full-year results on Thursday (27 February), and the share price rose 4.2% on the day in response. Aviva is now up 15% in 2025 and we’re only two months in.
The latest results were impressive, but I think we might only be at the start of what the new-look Aviva could achieve for passive income investors.
Dividend up
Aviva just announced a 35.7p dividend per share for 2024, up 7%. On the pre-results close that’s a 6.8% yield. On the price at the time of writing, it’s still a very respectable 6.6%. And investors have until 10 April before the stock goes ex-dividend.
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Insurance shares often pay big dividends. Legal & General, for example, is on a forecast yield of 8.5%. And leading the sector, the Phoenix Group Holdings yield is up at a huge 10.3%.
Yields of 7%-10% or so really can’t keep going at that rate year after year after year. But they can come down by a good route, or a bad one. The bad way is for a company to have a bad year and have to cut its payout — as Aviva did in 2020.
So let’s hope for the good way, that the percentage yield comes down because the share price rises.
Dividend vs earnings
Insurance dividends are periodically covered thinly by earnings, if at all. And that can be a cause for concern for anyone considering investing in this sector.
This time, we have basic earnings per share (EPS) of only 23.6p. But operating EPS of 48p is up 19% from last year, and forecasts show strong earnings growth in the next few years. The dividend prospects look strong enough to me.
But I’ve invested in insurance sector shares on and off for decades. And one thing I always expect is that I’ll have bad years, earnings hit, dividends cut… and so far I’ve never been wrong. It can be a risky cyclical sector.
New company
In the words of CEO Amanda Blanc: “Over the last four-and-a-half years we have completely transformed Aviva, built a track record of consistently strong results, and returned £10bn to shareholders.“
That ‘transformed’ thing means we’re looking at a very different company now, very much focused on the UK. So there’s no point comparing to the Aviva of five years ago (even if the share price has risen since then).
We’re still very much in the early days, and we haven’t seen how the new Aviva might cope with a sector downturn. But those shareholder retuns bode well.
Direct Line
The proposed takeover of Direct Line could result in synergy cost savings of around £125m per year. And Aviva reckons it could add an annual 10% to EPS. That should boost future dividend prospects, though there’s always some risk with merging companies.
Based on this latest update, Aviva remains a hold for me. I reckon investors looking for long-term passive income could do well to consider it. But given the cyclical nature of the insurance business, I really do think it’s best with a long-term horizon.
