One of the best dividend shares on the UK’s premier index is Aviva (LSE: AV.), in my humble opinion. Here’s why I reckon it could be a top-notch stock to help build wealth in my portfolio, and why I would love to buy some shares when I next can.
Five reasons I like Aviva shares
When looking for dividend stocks, I look for key criteria to be met in order to aid my investment case.
- Market standing. In an ideal world, I prefer the stock in question to be a market leader. This is certainly the case for insurance giant Aviva, with its more than £13bn market cap. It’s one of the largest and best-known insurance businesses in the UK. Plus, it has excellent coverage with an international presence too.
- Performance and payout track record. I’ll start by stating the obvious, which is that the past is never a guarantee of the future. However, I’d much rather buy shares in a firm that possesses a good track record of improving performance and consistently rewarding shareholders. This track record offers me insight into a firm’s priorities and ability to perform. Aviva ticks this box too.
- Rate of return. This is crucial for me, personally, and at present, Aviva shares offer a dividend yield of 7%. For context, the FTSE 100 average is around 3.6%. Although I understand that dividends are never guaranteed, I’m interested in building wealth through consistent dividends. Plus, I need to be wary of ultra high yields which could be a sign that a business is in trouble if the share price falls off a cliff, for example.
- Share price activity. As the chart below shows, Aviva shares have been on a good run. So first off, the higher-than-average yield isn’t a sign of trouble. Over a 12-month period, the shares have risen 24% from 394p at this time last year, to current levels of 492p.
- Valuation. I’ll be the first to admit I love a bargain. However, at the same time, I’ve no qualms about paying a fair price for quality. Luckily for me, Aviva shares fall into the first category. They trade on a price-to-earnings ratio of just 10, which I consider to be great value for money.
Risks and final thoughts
My first concern is that of intense competition in the financial services sector. Some of Aviva’s largest competitors include other FTSE 100 giants such as Legal & General. This competition could have an impact on performance and returns.
Another issue is that of economic volatility, which could hinder performance. For example, when consumers are battling higher living costs, they could turn away from financial planning products. This is because being worried about the present makes it harder to think about planning for the future. This could dent earnings and returns for Aviva.
Overall, for me, the pros outweigh the cons by some distance when it comes to Aviva as a top dividend stock. There’s lots to like about Aviva shares and I reckon the shares could help me build wealth through consistent dividends, as well as capital growth.
This post was originally published on Motley Fool
