FTSE 100 insurer Aviva (LSE: AV) is a popular choice as a dividend share. As a die-hard income investor, I’m certainly tempted by Aviva’s forecast dividend yield of 7.9%.
However, rising interest rates and surging inflation mean that market conditions for insurers could be changing. Before I decide whether to invest, I want to know if the current payout is safe, and if Aviva’s dividend can continue to rise.
Aviva dividend: latest forecasts
Despite its popularity, Aviva doesn’t have a great record of dividend growth. The payout has been cut a number of times over the last 20 years.
However, I’ve been impressed by the changes Aviva’s chief executive Amanda Blanc has made since she took charge in 2020. She’s sold a number of the group’s smaller international operations, repaid debt, and returned nearly £5bn to shareholders.
In my view, the changes made by Blanc have left the business in a much stronger position to provide reliable dividend payments. City analysts covering the stock seem to agree. They’re forecasting steady growth over the next few years.
In this table I’ve listed the latest dividend forecasts I can find for Aviva, together with the expected dividend yield, based on a share price of 400p.
| Year | Forecast dividend | Dividend yield |
| 2022 | 31.5p | 7.9% |
| 2023 | 33.4p | 8.4% |
| 2024 | 34.9p | 8.7% |
Aviva’s near-8% dividend yield is well above the FTSE 100 average of 3.7%. These projected payouts look affordable to me too, based on the company’s latest accounts.
Potential risks
I think Aviva shares look good value today and could be a useful source of passive income for my portfolio. But I can see some potential concerns. One situation that’s still developing is the impact of new rules this year preventing insurers from charging renewal customers more than new customers.
So far, Aviva says the impact of this change has been much as expected. New customers are paying more, renewal customers are paying less. Fewer people are switching.
However, the profitability of products such as home and motor insurance is coming under pressure due to inflation. Rising claims costs are forcing Aviva to push through price rises.
However, home and motor insurance are very competitive in the UK. I wonder if Aviva may struggle to win new business if its prices rise too quickly.
Aviva dividend: my decision
Aviva is now focused on a smaller number of core operations where it’s a market leader. I think this has improved the safety of the company’s dividend.
Alongside this, Blanc is also planning to start investing Aviva’s own money in infrastructure projects. The company could then use these investments to support pension schemes, or offer them to external investors.
I think this strategy could boost the insurer’s long-term profitability and growth, as it has done for rival Legal & General.
Not many stocks offer a sustainable 8% dividend yield, but Aviva does, in my view. Although I don’t own the shares at the moment, Aviva is definitely a stock I’d like to buy for my income portfolio.