One of many issues I like about proudly owning shares in blue-chip dividend shares is the passive earnings streams they will probably provide. Take insurer Aviva (LSE: AV) for example. The Aviva dividend yield is already 7.2%, which means that for each £1,000 invested right now a shareholder would hopefully obtain £72 in dividends yearly in future.
In reality, given its current monitor file of rising the payout per share every year, the earnings prospects could also be even higher than that. No dividend is ever assured (and certainly, Aviva lowered its payout in 2020) however I see this as a inventory buyers ought to think about.
Strong dividend prospects
For starters, I like the truth that the corporate has proved it is ready to generate sizeable quantities of extra money. That’s useful as a result of it may be used to fund shareholder payouts within the type of dividends.
Demand for insurance coverage is more likely to keep excessive. There will not be a lot development in demand as Aviva operates in mature markets just like the UK and Canada. However there might nonetheless be development in revenues by way of pricing will increase.
On high of that, Aviva might search to extend its market share by buying rivals — a subject that has been within the information this week. It is usually making efforts to promote present policyholders different merchandise (thousands and thousands of its UK shoppers already maintain a number of insurance policies with the agency).
That may hopefully assist sturdy money era. That would underpin ongoing dividend development every year, which administration has indicated is its plan. With a 7.2% yield, round twice the FTSE 100 common, I see the Aviva dividend as probably profitable.
Lengthy-term share worth development potential
On high of that, I reckon that Aviva shares might turn into a discount not simply due to the earnings potential, but in addition when it comes to how the share worth appears to be like right now in comparison with what it would attain over the long run.
With a price-to-earnings ratio in single digits (simply), the inventory appears to be like like a attainable discount to me. The whole market capitalisation is round £12.6bn. But Aviva has confirmed critical money era potential over the course of a few years.
It has a robust model, massive buyer base and below present administration has centered extra sharply on a smaller variety of core markets. I see that nearly as good for its long-term revenue potential.
A share to think about
After all, Aviva has appeared promising prior to now solely to disappoint. That 2020 dividend minimize put the funds on a greater footing, however was painful for present shareholders.
UK insurance coverage is aggressive (not that that is apparent from present premium ranges) and I see a danger of a price-focused rival in coming years attempting to undercut the large boys like Aviva. Given its reliance on the UK market that might harm revenues and earnings.
Nonetheless, priced attractively and with a excessive dividend yield, I feel it’s a share buyers ought to think about.
