Despite rising by over 20% in the past six months, Aviva (LON: AV) shares currently have a forward dividend yield of 5.5%. That’s over two percentage points greater than the yield of the FTSE 100 index.
As such, Aviva’s shares could prove to be relatively attractive for income-seeking investors. Certainly, it appears as though interest rates are likely to rise in the coming months as the Bank of England responds to rising inflation. However, the stock’s relatively high yield means it is likely to offer a greater income return than other assets, such as cash and bonds, for a prolonged period of time.
Moreover, the FTSE 100 insurance business is expected to raise dividends over the next two financial years. This year’s dividends per share figure of 22p is forecast to rise to 25p next year, followed by 27p the year after. This represents double-digit growth in dividends per share that is likely to equate to a substantial real-terms rise – even if inflation reaches the 4% or 5% level that the Bank of England currently anticipates.
In addition, the company plans to return at least £4bn to shareholders by the end of the first half of 2022. It will commence this process via a £750bn share buyback programme. This seems sensible, since Aviva’s shares currently trade on a forward price-earnings ratio of around 8.
Meanwhile, the firm’s recent half-year results showed that it is making progress in implementing a refreshed strategy. For example, it is on track to meet a target to cut costs by £300m in the 2022 financial year.
It has also experienced strong performances from across its product lines since deciding to exit certain businesses to enable it to focus on areas where it enjoys a greater competitive advantage. The process of asset disposals is expected to complete by the end of the current year. It also plans to cut debt by a further £1bn following the £2bn reduction in the first half of the year. This could leave the business with firmer foundations from which to generate growth in the coming years.
Of course, an uncertain global economic outlook and the prospect of rising interest rates could cause greater volatility across the FTSE 100. Such factors may cause an increasing ‘risk-off’ attitude among investors that limits share price appreciation prospects for many shares in the near term.
However, with what appears to be a sound strategy, high yield and dividend growth prospects, Aviva’s shares could offer strong performance compared to the FTSE 100 index over the long run.