High-dividend shares! Should I buy Aviva for its 8.2% yield?

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The Aviva (LSE: AV) share price has slumped 27% in 2022. Based on current dividend forecasts, this crash means Aviva shares carry a high dividend yield of 7.8% for 2022.

This figure beats the 4% FTSE 100 forward average by a huge distance. And the margin gets even bigger for next year. In 2023 the yield jumps to 8.2%.

Aviva’s share price has dived as worries over the global economy have grown. But should I buy this high-dividend share on account of those massive dividend yields?

And could it be a contender for excellent long-term dividend growth?

Dividend growth

Like many UK stocks, Aviva was forced to slash the payout at the height of the pandemic. In 2019 it hacked the full-year amount down to 15.5p per share from 30p the previous year.

Pleasingly the insurer has raised annual payments for the last two years since then. And it has plans to hike them by a massive 40% in 2022 to 31.5p per share.

City analysts expect Aviva to make good on this promise, as well as its intention to hike the yearly payout to 33p in 2023.

Cash machine

Thanks to its epic cash position I think the company will be able to meet these dividend forecasts.

Usually dividend cover of below 2 times is a warning sign for investors. It suggests a weak margin of safety if earnings disappoint. Notably Aviva’s projected dividends are covered between 1.4 times and 1.7 times over the next few years.

But this isn’t something I think the firm’s investors need to worry about. Massive restructuring has given its balance sheet an enormous boost, with sales of overseas non-core assets giving it a £7.5bn injection and cost savings also impressing.

In fact, in March Aviva upped its cost-cutting target following recent improvements. It’s now targeting savings of £750m excluding inflation between 2018 and 2024.

A strong balance sheet is giving the slimmed-down business scope to hike dividends and embark on share buybacks. Its Solvency II ratio leapt to 213% as of June, more than twice the regulatory requirement.

A red-hot value stock

There’s no doubt activist investor Cevian Capital is helping to drive Aviva’s ultra-progressive dividend policy. Its calls for bigger shareholder payouts included a demand last year for the company to return £5bn to shareholders after asset sales.

I think Aviva will generate large enough profits and cash to pay big dividends over the long term too.

In theory the company’s decision to sell its overseas units and concentrate on the UK, Ireland and Canada could limit its earnings prospects. But it’s my opinion that certain demographic changes (like rapidly ageing Western populations) and Aviva’s exceptional brand strength should still deliver solid revenues growth over the long haul.

One final thing: right now Aviva trades on a rock-bottom P/E ratio of 8.8 times for 2022. This makes it one of the best cheap dividend stocks to buy, in my opinion, and one I’m considering for my portfolio.

The post High-dividend shares! Should I buy Aviva for its 8.2% yield? appeared first on The Motley Fool UK.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.