Is Aviva’s Dividend Yield of 7 Per Cent Sustainable?

  • Apr 17, 2019 BST
  • Team Kalkine
Is Aviva’s Dividend Yield of 7 Per Cent Sustainable?

Aviva PLC (AV) is a British insurance group, headquartered in London, United Kingdom, which provides a wide array of insurance and savings products along with asset management business. The group consists of four operating segments: Long-term business, General insurance and health, Fund management and Other. The group also differentiates its operations based on geography, and the segments are United Kingdom, Canada, France, Poland, Italy, Ireland, Spain and Other, Asia, Aviva Investors and Other Group activities.

In FY18, the company has increased its dividend by 9% to 30 pence per share as compared with the dividend of 27.9 pence per share in FY17. However, in FY18 normalised earnings per share surged by 4.5% to 34.6 pence per share.

How was the DPS and EPS growth over the last five years?

In the last five years, Aviva’s DPS surged by 100% in absolute terms, even though the normalised earnings per share have been improved by 21% in absolute terms. However, in terms of CAGR, the dividend per share has grown with the CAGR of 14.8% over five years, and earnings have accelerated with the CAGR of 3.9% over the same period.

Along with the weak earnings growth, the shares of Aviva also witnessed a steep fall in the last year, that led to the high dividend yield.

Stock Performance

2-year Daily Price Chart (as on April 17, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (As on April 17, 2019, at 09:15 AM GMT), the shares of Aviva Plc were quoting at GBX 431.90 and added 7.2 points or 1.69% against its previous day close price. During the past one-year, shares have registered a 52w high of GBX 554.60 and a 52w low of GBX 361.80 and at the current market price, as quoted in the price chart, the shares were trading at 22% below its 52w high price level and 19.3% above its 52w low price level.

In the past year, shares of Aviva Plc have delivered a negative price return of 15.68%, and on a year-to-date basis, the stock was up by 13.53% respectively.

Also, Stock is carrying a Beta of 1 which indicates the movement in the stock price is broadly in line with the movement in the broader index FTSE 100.

From the Simple Moving Average (SMA) standpoint, shares were trading below its 200-day SMA which is a bearish technical indicator for any stock. However, shares were trading marginally above its 30-day and 60-day SMA.

The outstanding market capitalisation of the company stood at £17.03 bn which ranks it among the large-cap companies trading on the London Stock Exchange, and the stock is also one of the constituents of the FTSE 100 index.

At the current market price, Aviva's dividend yield stood at 7.04%, which was considerably above the dividend yield of the FTSE 100 index.

Going forward, the insurer aims to slash its debt by 2022, chairman Adrian Montague said. This will create a huge impact on the firm's ability to pay a dividend to its shareholders in future.

With Bank of England reducing the interest rates to a historic low level, the spotlight is back on diverse investment opportunities. 

Amidst this, are you getting worried about these falling interest rates and wondering where to put your money?

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