I’ve held Aviva (LON: AV) shares for several years now and topped up my holding back in December, so I was pleased with last week’s full-year results, as the FTSE 100 group announced a dividend that was higher than analysts’ estimates.
Leading up to the results, analysts had a dividend estimate of 26.5p per share pencilled in for FY2017. However, Aviva trumped that, declaring a dividend of 27.4p per share. The group increased operating EPS for the year by 7% to 54.8p.
The dividend of 27.4p per share payout is an 18% increase on FY2016. At the current share price of 518p, the payout equates to a trailing yield of 5.3%.
Aviva has now recorded four consecutive dividend increases, lifting the payout by 83% from 15p per share in FY2013. The turnaround story here really does appear to be gathering momentum, in my view.
The outlook for future dividend growth looks good right now. Looking ahead, analysts currently expect a payout of 29.7p per share for 2018, which at today’s share price, equates to a yield of 5.7%. In the last month, that estimate has been upgraded by around 0.3p. Dividend coverage is anticipated to be around 1.9 times.
Special dividend possibility
There’s also a possibility that Aviva could pay a special dividend in 2018.
Take a look at this snippet from last week’s results:
“Aviva’s capital strength provides us with significant flexibility in terms of future capital allocation. Our Solvency II capital surplus of 12.2 billion equates to a Solvency II cover ratio of 198%, well above our 150% to 180% working range. As a result, we have signalled plans to deploy 3 billion of excess cash in 2018 and 2019.
Our priorities for deployment remain unchanged. Our objective is to use surplus cash to deliver sustainable benefits to our shareholders. For 2018, we have outlined our intent to repay approximately 900 million of expensive hybrid debt, saving more than 60 million in annual pre-tax interest expense. We have allocated approximately 600 million for bolt-on M&A, which includes the 130 million already committed to the Friends First acquisition in Ireland. And we have indicated that in excess of 500 million will be used for capital returns, which may include liability management, share buy-back or special dividends.”
A special dividend in 2018 would be a fantastic result, but obviously, there’s no guarantee that we’ll see one.
For now, I’m very happy to be picking up a yield in excess of 5% on my purchase price.
Disclosure: Edward Sheldon, CFA owns shares in Aviva.
This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.