Dividend shares are prized for the earnings they supply, however these two have delivered some spectacular share-price progress over the previous couple of years as nicely.
That’s excellent news for me as a result of I’ve owned each for a number of years. After I first purchased them, their dividend yields had been near 10%. Right this moment, the yields are nearer to six%, largely as a result of their share costs have risen a lot.
That’s left me with an attention-grabbing query. After such sturdy performances, do these two FTSE 100 dividend shares nonetheless supply good worth at present — and which one appears the extra engaging alternative?
Two very totally different progress tales
At first look, there isn’t a lot that hyperlinks Aviva (LSE: AV.) and Aberdeen (LSE: ABDN). Aviva is a diversified insurer and monetary companies group, whereas Aberdeen is an asset supervisor with greater than £500bn of such property. However appearances will be misleading.
5 years in the past, Aviva was seen as a boring dividend inventory that had misplaced its means, whereas Aberdeen was combating persistent outflows. But each have confounded the market and delivered sturdy progress in their very own methods.
Aviva shed property, turned leaner and extra worthwhile, then used its stronger steadiness sheet to develop by means of a sequence of acquisitions, together with Direct Line. Aberdeen, then again, noticed a possibility within the direct-to-consumer market and pounced on interactive investor, which has since turn out to be a significant progress engine for the group.
The valuation dilemma
That is the place issues get attention-grabbing.
On the face of it, Aviva appears costly. I calculate a ahead dividend yield of round 6.2%, with the shares buying and selling on roughly 39 instances trailing 12 month earnings. Aberdeen, in the meantime, affords an analogous yield however trades on simply 11 instances earnings.
That would appear to make Aberdeen the apparent worth decide. However there’s a catch.
Aviva’s dividend is roofed round 1.3 instances by earnings and remains to be rising. Aberdeen’s is roofed by simply 0.8 instances, and administration has indicated that it doesn’t anticipate to extend the payout till dividend cowl improves.
So buyers aren’t merely selecting between two shares providing roughly 6% earnings. They’re selecting between paying a a lot larger valuation for a rising dividend, or paying a a lot decrease valuation for a dividend that’s presently being held flat.
Which appears your best option?
For me, this isn’t a simple selection. Aviva has the stronger dividend credentials, with higher cowl and a payout that’s nonetheless rising. It’s additionally the much less speculative of the 2 companies.
However I feel Aberdeen affords extra attention-grabbing progress potential from right here. The shares have already re-rated as buyers have recognised the progress at interactive investor. There might be scope for additional positive factors if it might probably repair persistent outflows from its Adviser enterprise.
That makes Aberdeen the riskier funding, significantly whereas its dividend isn’t lined by earnings. But it surely additionally means the shares may have a lot additional to run if administration can flip the enterprise round.
Aviva stands out as the better option for buyers who’re prioritising a rising earnings stream to contemplate. For me, although, Aberdeen’s mixture of a roughly 6% yield, low valuation and potential for an earnings restoration makes it the extra attention-grabbing alternative.
And I can see a number of different tempting FTSE 100 dividend shares on the market…
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Andrew Mackie owns shares in Aviva and Aberdeen.
