Yahoo Finance Should You Buy Aviva plc (LON:AV.) For Its Upcoming Dividend?
Readers hoping to buy Aviva plc (LON:AV.) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 10th of December, you won't be eligible to receive this dividend, when it is paid on the 21st of January.
Aviva's next dividend payment will be UK£0.07 per share, and in the last 12 months, the company paid a total of UK£0.15 per share. Based on the last year's worth of payments, Aviva has a trailing yield of 4.6% on the current stock price of £3.382. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Aviva
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Aviva paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Aviva earnings per share are up 2.8% per annum over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Aviva has seen its dividend decline 4.3% per annum on average over the past 10 years, which is not great to see. Aviva is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
Final Takeaway
Is Aviva an attractive dividend stock, or better left on the shelf? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. We think this is a pretty attractive combination, and would be interested in investigating Aviva more closely.
While it's tempting to invest in Aviva for the dividends alone, you should always be mindful of the risks involved. For example, we've found 2 warning signs for Aviva that we recommend you consider before investing in the business.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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