Is Aviva a Decent Income Stock?

James Gard: Each week we look at one stock that is cheap or expensive and why. As it’s income week at, we’re looking at insurance company Aviva, which pays out hundreds of millions of pounds to shareholders every year.

The FTSE 100 company paused its dividend last year under pressure from regulators, but has made three payouts to shareholders in 2021, including an interim dividend of 7.35p in October.

Aviva, which is known as a “multiline” insurer, pays out half of its earnings in dividends and is expected to hand nearly £900 million to shareholders in this financial year. Shares currently yield around 5.5% , comfortably above the FTSE 100 yield of 4%. And Morningstar analyst Henry Heathfield expects payouts to grow to just under £1 billion in the following year, leaving the company with more than £400 million to embark on further share buybacks and to reinvest in the business. He says Aviva’s new CEO is making good strides to focus, transform and simply the business, which includes all forms of insurance, pensions, and investment management.

Aviva is considered to be undervalued by Morningstar analysts, who think the shares have a fair value of 500p, above the current price of 400p.

For Morningstar, I’m James Gard.



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