Image source: Getty Images
When I’m looking for good passive income, dividend stocks play a key role in my portfolio. An example of this is Aviva (LSE: AV). The UK-based insurance company currently has a dividend yield of 4.88%, higher than the FTSE100 average of 3.52%. Are Aviva stocks a gem I should add to my portfolio right now?
A robust business model supports dividends
Aviva is defined as “the UK’s leading provider of insurance, protection, savings and retirement solutions”.
Its diverse business model allows it to serve a wide range of customers and have multiple open revenue streams. It also has a case not only in the UK, but also in Ireland and Canada. This geographical reach allows it to withstand the fluctuations in demand observed in a particular country.
Overall, Aviva shares appeal to me as an income investor. Stable cash flow and strong customer relationships should keep profits rolling, which will translate into regular dividend payments.
For example, the latest 2021 results highlight this. Remittances amounted to £1.66 billion, up 22% on the previous year. Note the performance of the Savings and Retirement division with net flows of £10 billion, a record.
In total, the dividend per share was increased by 5% to 22.05 pence. The company thinks even further, commenting that “Following the proposed B Share Scheme and the reverse stock split announced today, this would equate to an indicative amount per share of around 31.5 pence, an increase of around 40% on 2021” .
Aviva’s shares seem interesting to me from this angle. A clear strategy for long-term dividend payments is always attractive.
Aviva shares over the past year
One thing I need to be aware of for dividend stocks is the price action of the shares. A return of nearly 5% is fine, but what if the stock price crashes?
Aviva shares are up nearly 11% over the past year. At 447p, it’s back above prices last seen in 2019 just before the pandemic hit.
Still, when I look at the price/earnings ratio, I don’t think the stock is overvalued. The current P/E ratio is 6.24, which is pretty cheap.
From my perspective, as long as the stock price isn’t under severe pressure when I own it, it’s fine. However, if I can collect the dividends and also enjoy some share price gains, that’s an added bonus.
Observed pressure from investors
One risk I see is the pressure that could come from activist shareholder Cevian, backed by the infamous Carl Icahn. He rallied around cost cutting and returning capital to shareholders, which is not a bad thing in and of itself. However, pressure in this form can be detrimental to a business over time. This can prevent him from making the necessary decisions, even if they are unpopular in the short term with the shareholders.
Overall, I think Aviva shares are attractive for passive income, so I’m considering buying the shares now.