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I initially purchased Aviva (LSE: AV) shares as a key a part of my passive earnings portfolio. It was designed to ship an annual dividend yield of seven%+.
This determine is presently greater than double the typical FTSE 100 price of three.2%. Additionally it is considerably increased than the 4.7% ‘risk-free rate’ (the 10-year UK authorities bond yield). This is a vital benchmark to me, as I would like compensation for taking the additional danger concerned in share investing.
Nevertheless, though averaging over 7% from 2022-2024, Aviva shares now yield 5.4%. It is because a inventory’s yield strikes in reverse instructions to its worth, given the identical annual dividend.
Such an increase within the share worth doesn’t profit me in any respect, until I promote the inventory. However this defeats the aim of such a holding, which is to generate excessive dividend earnings over the long run.
Consequently, I made a decision to take one other have a look at the inventory to see what its dividend yield outlook is. If it isn’t set to rise, then I would as properly promote it and make investments the proceeds in one thing with a a lot increased dividend yield.
So what’s the dividend yield outlook?
Aviva paid a complete dividend final yr of 35.7p, which supplies the current 5.4% yield on its £6.64 share worth.
Nevertheless, analysts forecast the dividend will improve to 38.6p this yr, 41.5p subsequent yr, and 44.7p in 2027. This is able to generate respective yields of 5.8%, 6.2%, and 6.7% in these years.
The rising pattern in yield and the truth that the final of those could be very near my 7% minimal is reassuring. Nevertheless, I must know it’s supported by stable firm fundamentals. These ought to be mirrored in substantial earnings progress.
Fundamentals and earnings progress
Aviva’s latest outcomes look very stable to me. Full-year 2024 numbers launched on 27 February noticed working revenue soar 20% yr on yr to £1.767bn. Gross sales from its insurance coverage, wealth, and retirement enterprise climbed 22% to £43.5bn whereas common insurance coverage premiums rose 14% to £12.2bn.
As a consequence, it raised its annual dividend by 7% to the aforementioned 35.7p.
In its 14 August H1 2025 outcomes, working revenue recorded one other huge soar — of twenty-two% to £1.068bn. Insurance coverage, wealth, and retirement enterprise gross sales elevated 9% to £21.5bn, and common insurance coverage premiums have been up 7% to £6.3bn.
A danger right here is any additional surge within the cost-of-living disaster that might immediate prospects to cancel insurance policies. Nevertheless, analysts forecast that Aviva’s earnings will develop a robust 18.8% a yr to end-2027. This could show a really highly effective engine for progress.
How a lot passive earnings may be made?
One other £20,000 invested in Aviva shares yielding 6.7% would make me £19,012 in dividends after 10 years.
This additionally incorporates the thought of the dividends being reinvested again into the inventory – referred to as dividend compounding.
After 30 years on the identical foundation, this determine would rise to £128,434. Together with the £20,000 invested, the holding could be price £148,434 by then. And that might generate an annual passive earnings (from dividends) of £10,390 at that stage.
Given this forecast, based mostly on sturdy projected progress, I’m glad to maintain my Aviva shares. I additionally suppose them worthy of different traders’ consideration.
