Should I buy Aviva shares for the dividend in 2022 and 2023?

Aviva (LSE: AV) shares have exploded in value following the release of strong financial results last week.

Yet despite this stunning rise, dividend yields at the FTSE 100 insurer remain enormous. For 2022, the shares carry a large 6.7% dividend yield. And for 2023 it moves to 7.1%.

These figures sprint past the Footsie forward average of 3.7%. But, of course, yield is based on broker estimates and, in reality, a final dividend can fall well short of City targets.

So how realistic are Aviva’s dividend forecasts right now? And should I buy the company for my Stocks and Shares ISA anyway?

Dividend cover

Dividend cover is one of the first things to look at when assessing a stock’s dividend prospects. Ideally, I look for payouts to be covered more than 2 times by anticipated earnings. Any reading below 1.5 could also suggest that dividend estimates might be a tad optimistic.

So whats the story for Aviva? A total payout of 31.4p per share is forecast for 2022. A larger 33.1p reward is expected for next year too. But based on these projections, dividend cover sits at just 1.4 and 1.6 times respectively.

Balance sheet

However, it’s also critical to look at the health of a company’s balance sheet. And in this regard I’m not as concerned about Aviva’s payout prospects as I am for many other UK income stocks. In fact, the firm’s cash-rich balance sheet is allowing it to return capital to shareholders at an impressive level.

Last week, the insurer said it will hike the interim dividend 40% year-on-year, to 10.3p per share. This was thanks to a sharp uptick in its capital ratio in the first half. Aviva’s Solvency II ratio ballooned to 213% from 186% a year earlier.

On top of this, it announced plans to launch another share buyback programme when it releases full-year results. This follows the £4.75bn capital return it executed back in May.

Is Aviva a buy?

I’m expecting Aviva to pay the bulging dividends that brokers predict for 2022 and 2023. But as a long-term investor, I’m looking for more than this. I buy UK shares according to what returns I can expect, say, a decade from now.

I must say that I’m pretty excited by Aviva’s outlook for the next 10 years.

Thanks to massive restructuring and a drastically reduced geographic footprint, the company’s an excellent cash generator. Not only could this enable it to continue showering investors with big dividends, it also gives the firm financial firepower to carry out earnings-boosting acquisitions. Just like the recent £385m purchase of financial advisors Succession Wealth.

I also like its robust position in financial products like pensions and equity release. Demand for these products is likely to soar as Britain’s population rapidly ages. Furthermore, the steps it’s taking to digitalise its operations also gives it an edge over the broader market and should prove exceptional cross-selling opportunities.

Sure, sales might slip in the near term as the global economy weakens. But all things considered, I think it’s a top dividend stock to buy today.