FTSE insurer Aviva (LSE: AV) has lengthy been a core holding in my portfolio of shares that pay excessive dividends.

After I turned 50, I considerably boosted the scale of those high-yield investments, largely by promoting progress shares I owned.

The thought is to maximise the common stream of dividend revenue, so I can proceed to cut back my working commitments.

After all, the yield from shares modifications as dividend funds and share costs transfer. Up till not too long ago, Aviva constantly yielded over 7% — the minimal return I require from my high-yield shares.

Nevertheless it’s now just below that. So I’m questioning how a lot I’d want to speculate proper now to make me an extra £500 a month in dividend revenue.

Dividend compounding is essential

‘Dividend compounding’ is similar precept as compound curiosity in financial institution accounts, however moderately than curiosity being reinvested, dividend funds are.

Nonetheless, the distinction in returns between withdrawing dividends paid annually or reinvesting them is large.

For instance, Aviva’s 2023 dividend was 33.4p a share. With no reinvested dividends, I must purchase 17,964 shares to generate £6,000 a 12 months in dividends, or £500 a month.

This might value me £88,203 on the present £4.91 worth. That’s numerous proverbial eggs to place in a single basket from a danger perspective.

And there are dangers within the firm, as in all shares. One for Aviva is a brand new international monetary disaster. One other is a resurgence in inflation in its core markets of the UK, US, and Canada. This might enhance the price of dwelling, which could deter new prospects and trigger current ones to cancel insurance policies.

Nonetheless, if I reinvested the dividends paid me – averaging 6.8% – I may obtain this with lots much less upfront.

So, 4,073 shares now – costing £20,000 – would give me a complete funding pot constructing to £95,137 after 23 years. This might generate £6,237 in dividend funds a 12 months, or £520 a month.

Ranging from nothing

Astonishingly maybe, this may be finished from a place to begin of £0 and in a barely shorter time.

Investing simply £5 a day – £150 a month (30 shares) — would give me £500 a month in passive revenue after 22 years.

That is offered the yield averaged 6.8%. After 30 years on the identical proviso, I’d have £176,932, paying me £11,545 a 12 months, or £962 a month!

Is a excessive yield sustainable?

Many UK monetary companies have made paying excessive dividends a key a part of their technique to help their share costs. This adopted the broad markdown of those shares after the 2016 Brexit determination, justified or not.

Sturdy share costs deter hostile takeover bids from firms utilizing higher-value shares as collateral. In addition they bolster an organization’s potential to boost capital for enlargement.

Aviva’s 2023 outcomes had been optimistic for ongoing excessive dividends. They confirmed a 9% rise in working income to £1.47bn, from £1.35bn in 2022.

There was additionally an 8% enhance in Solvency II working capital technology to £1.46bn, from £1.35bn in 2022.

This supplies an additional safeguard in opposition to hostile takeovers and can be a robust engine for progress.

Consequently, I’m completely happy to carry on to my shares in Aviva on my expectations of sturdy progress and excessive dividends sooner or later.