Dividend portfolio update: I added to my Aviva holding in December

Lloyds Bank 2017 dividend

My investment strategy at the moment is to continue slowly drip feeding funds into attractively-priced dividend stocks, taking advantage of compelling opportunities.

In December, I made one small trade. I added to my holding in Aviva (LON: AV).

Upgrade to dividend targets

I have covered Aviva a few times recently.

The insurer released an excellent update at the end of November, stating that it was upgrading its growth, cash and dividend targets. The company said that it would be deploying £3bn excess cash in 2018/2019 to repay debt, fund acquisitions and pay additional returns to shareholders. It also said that it would be increasing its dividend payout ratio target to 55-60% of operating earnings per share by 2020.

As a dividend investor, that update sounded pretty good to me.

Yet the share price hardly budged. After an initial spike up to around 520p, the stock fell back to the 500p mark over the next few days. So I bought a tranche at 503p, adding to my initial holding that I purchased around three years ago at a similar price.

Attractive dividend yield

When I purchased this second tranche of Aviva shares in December, analysts were forecasting a FY2017 dividend payout of 26.4p per share. That was a prospective dividend yield of 5.2% on my purchase price. Since then, we have seen a small consensus update to 26.6p per share, boosting my yield.

Analysts have also lifted their dividend forecasts for FY2018. Next year’s payout is now expected to be 29.3p per share. On my recent purchase at 503p, that’s a yield of 5.8%.

Dividend coverage looks healthy for both FY2017 and FY2018, at 2.0 and 1.9 times respectively.

Overall, given the stock’s high yield, high growth of yield, robust coverage, and low valuation (P/E of approx 10), Aviva shares look to offer strong potential from a dividend investing perspective, given the significant momentum of the business.

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.

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