Picture supply: Getty Pictures
Aviva (LSE:AV.) shares have been a breath of contemporary air in my portfolio since I purchased them in late 2023 at 413p apiece. Not solely have they appreciated in worth to 644p, they’ve additionally pumped out beautiful rising dividends.
However I used to be questioning just lately what number of Aviva shares it might take to pay for the typical month-to-month power invoice. Based on EDF Vitality, that is at present £147 for a medium-sized family.
Let’s take a better have a look at this FTSE 100 insurance coverage inventory to search out out.
Robust efficiency
After greater than a decade within the wilderness following the monetary disaster, Aviva inventory has burst again into life lately. Below CEO Amanda Blanc, the insurer has exited almost all worldwide markets to give attention to extra worthwhile companies within the UK, Eire, and Canada.
Importantly, Aviva has pivoted in direction of wealth administration and common insurance coverage within the UK — merchandise that require much less money sitting on the steadiness sheet than life insurance coverage. This asset-light technique has been paying dividends, fairly actually.
In Q3, common insurance coverage premiums rose 12% to £10bn, whereas its wealth enterprise secured web flows of £8.3bn, bringing property to £224bn. Within the UK, there was a 24% bounce in private strains (motor, residence, journey insurance coverage, and so on), which largely mirrored Aviva’s £3.7bn acquisition of Direct Line.
Encouragingly, Direct Line’s £100m cost-cutting plan was completed three months early, and Aviva is now concentrating on £225m of extra synergies by 2028. The mixed companies types the UK’s largest motor and residential insurer.
Passive earnings plan
Turning to earnings, the most recent 12-month forecast places Aviva’s forward-looking dividend yield at a really respectable 6.4%. This represents a FY25 remaining dividend in Could and a FY26 interim dividend anticipated round October.
So, to earn £147 per 30 days — the equal of £1,764 per 12 months — to pay for an power invoice, an investor would want to unfold these two funds out throughout the 12 months. The shares would value round £27,000 at right now’s market worth.
Naturally, that’s an unaffordable sum for most individuals. Nonetheless, it’s doable to construct in direction of it by investing, say, £600 per 30 days in Aviva shares.
On this situation, it might take just below three and a half years to build up sufficient shares to pay £1,764 in annual dividends. This assumes payouts are reinvested throughout this era moderately than spent.
Sadly, UK power payments will most likely be increased in three years’ time, however hopefully Aviva’s dividend will rise to offset that.
For simplicity’s sake, I’ve additionally assumed a secure share worth throughout this era, which is unlikely (ideally, it can rise).
Diversification
No inventory is risk-free, in fact, and Aviva may underperform if the UK financial system hits the rocks over the following couple of years. This may see shoppers cancel sure insurance coverage insurance policies.
Additionally, it might be finest to not put all eggs in a single Aviva-shaped basket. However as a part of a diversified high-yield ISA portfolio, I believe this FTSE 100 inventory is nicely value contemplating right now.
