You cant go wrong withAviva (LSE: AV), in my opinion. Now the company has built itself into the UKs largest retirement savings provider by acquiring peer Friends Life, the enlarged group is well placed to profit from the UKs ageing population.
The acquisition of Friends Life also helped Aviva rebuild its balance sheet. Indeed, the group now has one of the strongest balance sheets in the sector. After completing the merger, Avivas management reported that the companys economic capital surplus had risen to 10.8bn, up 35% from the figure of 8bn as reported last year.
Plenty of capital
Avivas 10.8bn capital surplus covers the companys commitments by more than 170%, meaning that the group insulated from any sudden shocks. Whats more, 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%.
Further, its estimated that as a result of the Friends Life merger, Avivas cash flow will increase by an additional 600m per annum by 2017. These numbers have given Avivas management the confidence to hike the companys dividend payout by15% 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 5.3% next year and 6.1% during 2017.
So all in all, Avivas dividend growth will give your portfolio a much-needed income boost. However, Avivas not the only company thats planning to boost cash returns to investors.
Cash rich
ARM Holdings (LSE: ARM) currently trades at a forward P/E of 30.7 and even though City analysts expect the companys earnings per share to grow by 69% this year, it doesnt look as if theres much upside in the companys shares. Whats more, ARMonly offers a dividend yield of 0.9%.
Still, City analysts expect ARMto jack up its cash returns to shareholders going forward. And with 904m of cash on its balance sheet, ARM has plenty ofroomto boost its dividend payout. Moreover, City analysts are forecasting that ARMwillgenerate a 3.5% cash flow yield next year, rising to 6%by 2020. So, the companys cash balance is only going to expand over the next few years.
A newchief financial officer has also increased the odds of ARMimproving shareholder returns. Indeed, new CFO ChrisKennedy previously worked at easyJet where he oversaw a series of capital returns. If ARMreturned just 50%, or 450m of its cash pile toshareholders, investors could be in line for a special payout of 32p per share.
Income champions
Aviva is already an income champion, and ARMhasthe potentialto follow suit.
If you’re interested in seeking out more of the market’s top income stocks then why not check out The Motley Fool’snew income report double pack.
For a limited time only,we’ve bundled together our top income report, “How To Create Dividends For Life“, with a report entitled, “My 5 Golden Rules for Building a Dividend Portfolio”.
Together, the two reports teach you everything you need to know to build a buy and forget dividend portfolio. Justclick hereto download the free report double pack today!
Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.