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For me, Aviva (LSE: AV) shares will always be the ones that got away. When loading up my self-invested personal pension (SIPP) last year, I bought almost every high-yielding, dirt-cheap FTSE 100 financial stock I could find.
I didn’t buy Aviva, which went onto outperform the lot. While its shares have idled in recent months, they’re still up 10% over one year and 20% over five. That isn’t exactly Nvidia territory, but top UK blue-chips like Aviva have a different role to play in a balanced portfolio.
Instead of quick-fire growth, they offer the prospect of solid long-term returns, in periods measured over years or even decades. That doesn’t just come from a rising share price, but the steady stream of dividends they pay investors.
Can this top blue-chip give me growth too?
FTSE 100 stocks pay some of the most attractive dividend yields in the world. Currently, shares on the index pay average income of 3.6% a year. That compares to a meagre 1% on the growth-friendly S&P 500. Those dividends close the difference between the two over time (although not totally, sadly).
Aviva has a bumper trailing yield of 7.31%. It also has a solid track record of increasing shareholder payouts, year after year. It’s not perfect though, having suspended the dividend during the pandemic. It’s recovered since, as this chart shows.
Chart by TradingView
Aviva CEO Amanda Blanc is aiming to increase shareholder payouts every year, targeting “mid-single-digit growth”. The forecast yield for 2025 is an even more tempting 7.82%. Blanc has also promised “further regular and sustainable returns of capital”, probably via share buybacks.
If an investor put £10,000 into the stock today, they would potentially get income of £782 this year. Any share price growth would be on top.
The 12 analysts offering one-year share price forecasts have produced a median target of just over 550p. If that pans out, it would mark an increase of more than 16% from today’s 472p. Combined with that yield, this would give investors a total return of around 24%. Time will tell.
This FTSE 100 stock has plenty of cash
Aviva has a healthy balance sheet and generates plenty of cash, but as with any stock, there are risks. First, it looks like interest rates are going to stay higher for longer. That’s bad news for income stocks like Aviva, because it gives investors a decent return from cash and bonds, with no risk to their capital.
Higher interest rates will also squeeze stock markets generally, hitting the value of its £376bn of assets under management.
Aviva is also under pressure to make a success of its £3.6bn takeover of Direct Line. While it stands to make potential savings, the anticipated £125m of capital synergies will only arrive if the board gets its strategy right.
Eight out of the 14 analysts following Aviva name it a Strong Buy. None recommend selling. Sadly, I’ve already made my choice. Having bought rivals Legal & General Group, M&G, and Phoenix Group Holdings, another insurer would be overload.
All three FTSE 100 stocks have even higher yields than Aviva. Now I just hope they can match its share price performance.
