NEWSLETTER
Aviva (LSE: AV.) Shares have fallen around 3% in 2023, underperforming FTSE 100. But they have been slowly rising lately, gaining about 15% in four months.
I recently became a shareholder, attracted by the juicy forward dividend yield of 8% for 2024. Not a big holding (yet). But if you wanted to aim for £100 a month in passive income, exactly how many Aviva shares would you need?
Invest for dividends
As I write, shares are changing hands at 432p each. Assuming next year's expected 8% return is met, which is not guaranteed, you would need to buy 3,470 shares to earn £100 in monthly passive income.
That would cost me around £14,990. That's a considerable sum of money to invest in a single company, especially since dividends are not certain to be paid. I currently don't have £15k in stock.
That being said, I am committed to increasing my participation. I think there are a lot of things to like here.
Streamlining operations
First, I am impressed with the change that CEO Amanda Blanc has been implementing. This has meant expanding and prioritizing their businesses with little capital. These tend to generate profits without significant upfront expenditures on physical assets or infrastructure (asset management, for example).
Part of this strategy has involved selling multiple international businesses, thereby reducing its focus and geographic presence.
It left many EU markets a couple of years ago. And the last overseas sale was in Singapore, where it emerged from a joint venture and raised £800m in the process.
Its main markets today are the United Kingdom, Ireland and Canada.
Private healthcare on the rise
In the third quarter, Aviva's gross written premium (GWP) rose 13% year-on-year to £8bn (at constant exchange rates).
Its workplace pensions business performed well and attracted more than 350 new corporate clients. But the standout area was health, with sales rising 56% as people signed up for private cover amid record NHS delays.
In fact, there are now around 7.7 million in England on NHS waiting lists for specialist clinical care or surgery. That's the kind of thing that will take many years to clear up, which means more people are likely to become private, either directly or through their employer. This should benefit Aviva.
On this topic, Blanc has said: “We see this as very broad and there are literally opportunities everywhere..”
For the full year, the insurer expects 5-7% growth in operating profit.
One concern is a UK recession in 2024, a prospect that has re-emerged of late. An economic crisis could force people and businesses to cut back on their discretionary insurance. It is worrying, at least in the short term.
I'm still optimistic
The stock is currently trading with a forward price-to-earnings (P/E) ratio of 11.5. That's roughly in line with the FTSE 100 average, indicating the shares are not expensive.
Looking to the future, Aviva's CEO is optimistic: “I am very confident that Aviva will continue to deliver more for shareholders and we reiterate our guidance for a total dividend of 33.4p by 2023, and higher regular and sustainable returns on excess capital.”
I have to say I like that optimistic comment, and think investors should consider taking a look at Aviva shares for passive income.
