Everyinvestor needs a selection of long-term, buy-and-forget shares in their portfolio to provide a steady income, as well as capital growth without taking on too much risk.Aviva (LSE: AV) andaFTSE100 tracker are two such investments.
On one hand, Aviva has a robust balance sheet, is well managed, operates in a long-term industry and offer attractive dividend yields. While on the other, theFTSE 100tracker provides a healthy amount of diversificationalong with the potential for capital growth over the long-term.
Over the past year, Aviva has turned itself into one of the markets best income stocks by buying peer Friends Life.
Indeed, the Friends deal transformed Avivas balance sheet, and synergies from the deal are expected to total 600m per annum by 2017. It is anticipated that most of this cash will be returned to shareholders.
On the balance sheet front, at the beginning of August Avivas capital surplus totalled 10.8bn, covering the companys commitments by more than 170%. This figure implies that the group is well insulated from any sudden shocks.Avivas own analysts have stress-tested the companys balance sheet and believe that, even after a 20% fall in equity values, the groupseconomic capital coverage ratio will remain above 170%.
Still, one of Avivas most attractive qualities is the long-term nature of the companys business. Selling life insurance and retirement savings products isnt going to go out of fashion any time soon, and these products guaranteerecurring cash flows for decades.
Aviva has all the traits of a great income investment. The company has a strong balance sheet, is generating excess cash and is unlikely to see sales collapse overnight. In fact, Avivas managementisso upbeat about the companys prospects that they hiked the groupsdividend payout by 15% when it announced first-half results at the beginning of August.
City analysts believe that this dividend growth is set to continue for the foreseeable future. Analysts have pencilled in dividend growth of 20% for next year and 15% the year after. These forecasts suggest that based on todays prices Avivas shares will support a yield of 4.5% next year and 5.2% during 2017.
Slow and steady
While Aviva provides the income for your portfolio,an FTSE100 tracker offers the diversification and capital growth all investors need.
Unless youre Warren Buffett or Neil Woodford, buyingan FTSE100 tracker is the best way to protect and grow your wealth over time. For example, over the past two decades the FTSE 100 has risen at a rate of around 5% per annum, excluding fees, dividends and inflation. The average investor has only returned 2.5% per annum including dividends and research shows that around 80%of active fund managers also fail to beat the market.
Whats more, most tracker funds now charge less than 0.5% per annum in management fees, so its often cheaper to buy a tracker than the trading costs associated with active management. Two top trackers are theBlackRock 100 UK Equity TrackerandtheFidelity Index UK, which charge 0.50% and 0.06% per annum in management fees respectively. Blackrocks tracker yields 3.04% and Fidelitys yields 2.81%.
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The report designed to help you discover and assess the market’s best income stocks, which have similarqualities to Aviva, in order to create asustainable income stream from dividends. Further,the reporthighlightsthe five key rulesall serious dividend hunters need to follow.
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