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What I like best about having shares in a FTSE 100 Dividend stocks are consistent returns, even in bad years for the stock market.
During a turbulent 2022, I was delighted to receive regular payments into my brokerage account for the shares I owned in these types of companies.
Among UK companies, one of the largest dividend payers is fan (LSE: AV). The firm has paid out more than £1bn to shareholders in recent years.
I don’t have a seat in the insurance giant FTSE 100. But with 2023 looking like another tough year for markets, I see a few reasons why this could be the best bargain in the FTSE 100.
considerable performance
Aviva’s annual return currently stands at 7.63%. Over a year, I would expect that percentage on a £1,000 bet to give me £76.30 and a £10,000 bet to give me £763 and so on.
I would be very happy with those types of payments, but they are so large that there could be a risk that future payments will be reduced or inconsistent.
The first step I can take to assess this risk is to look at past performance and future projections. Over the past five years, Aviva’s annual percentage dividends have been 7.1%, 10.9%, 3%, 10.5% and 7.1%.
Those are excellent numbers and are mostly around the current figure of 7.63%. Even 3% came in 2020 due to the COVID pandemic, which should be an exception and not a sign of future declines.
Towards the future
Looking ahead, Aviva’s projected dividend for next year is an increase from 31 pence per share to 32.5 pence. The percentage will vary, but at today’s stock price it would be 7.9%.
It’s great that past and future dividends look strong, but I can be even more confident that future dividends will stay that way by looking at how much the company spends on them.
As a general rule of thumb, if more than 60% of a company’s profits go to shareholders, that’s a bad sign. Spending that much on dividends can mean less cash for the company to spend to grow its business. And if the payments are too high, they can be unsustainable and go down in the future.
Aviva spent about 53% of its earnings on dividend payments in 2022. Based on that, I’m sure there are no short-term threats to the dividend.
I am buying?
Of course, I can’t just analyze a company with a quick glance at its dividend.
In Aviva’s case, I like that the company has a global reach in countries like Ireland and Canada, so it’s not too dependent on UK revenue. But I am concerned that insurance is a saturated market, which may impede further growth.
Analyzing these things is crucial to be sure that you buy a good company. And if I do it right, I might even expect the shares I own to be worth more, giving me even more ROI.
In general, Aviva seems very strong to me. I think its close to 8% yield and strong dividend track record make it one of the best deals the FTSE 100 has to offer right now. I will be looking to open a position in the near future.
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