As we sail into the previous couple of months of 2024, dividend-hungry traders are naturally on the prowl for firms with profitable yields. Enter Aviva (LSE:AV.), the insurance coverage titan that continuously turns heads with its mouth-watering 7% dividend yield. However is that this FTSE 100 stalwart the one to look at for passive-income seekers? Let’s dive in and see if the corporate is as rock-solid as its 328-year heritage suggests.

The dividend

Firstly, let’s handle the elephant within the room: that eye-popping 7% yield. In a world the place many excessive avenue financial savings accounts are nonetheless providing peanuts, the corporate’s dividend seems like a veritable feast. However as any seasoned investor is aware of, if one thing seems too good to be true, it normally is. So, is Aviva’s dividend a mirage or an oasis?

The excellent news is that the agency’s financials are wanting more and more sturdy. The corporate swung again to profitability in 2023 after some difficult years, and analysts are forecasting earnings development of 9% yearly. This bodes effectively for the sustainability of that spectacular dividend.

Undervalued?

However for me, right here’s the place it will get actually attention-grabbing. The shares are at the moment buying and selling at a whopping 42% low cost to their estimated honest worth, primarily based on discounted money circulation (DCF) calculations. Though such returns are removed from assured, this hole suggests the market could be severely undervaluing the long run earnings potential, particularly contemplating the corporate’s current cost-cutting measures and restructuring initiatives.

The shares have already proven some zip, climbing 18% over the previous yr and handily outperforming competitors within the wider insurance coverage sector, which truly declined by a median of 10% in the identical interval. This may very well be an indication that bigger gamers out there are beginning to take into account the corporate’s potential.

Dangers

Now, let’s handle the much less spectacular parts of the enterprise: that lofty 89% payout ratio. Usually, such a excessive proportion would set alarm bells ringing, because it leaves little wiggle room if enterprise circumstances bitter. Nonetheless, the agency’s sturdy capital place (with a solvency ratio of 206%) gives a comforting buffer. The corporate’s numerous enterprise combine throughout life insurance coverage, normal insurance coverage, and asset administration additionally helps unfold the chance.

The insurance coverage sector faces quite a few difficulties from elevated regulation, local weather change-related claims, and the continued cost-of-living squeeze. However I believe administration appears well-positioned to climate these storms, with sturdy branding, market-leading positions, and ongoing digital transformation efforts.

Ticks all my bins

So, is Aviva my favorite passive earnings decide for 2024? It definitely ticks lots of bins. Though there are many dangers, I really feel that the mixture of a excessive yield, probably undervalued share price, and enhancing enterprise fundamentals makes it a horny proposition for income-seeking traders prepared to just accept some short-term volatility. I’ll be including shares on the subsequent alternative.