After years of being neglected, UK dividend shares are beginning to appear like unmissable bargains, to my eyes. 

Traders have shunned the FTSE 100 as they chase high-flying US tech shares, however that dynamic could possibly be about to shift. With rates of interest anticipated to fall this yr and subsequent, high-yielding dividend shares might steadily regain their enchantment.

Recently, buyers have most well-liked the security of money and bonds. These have provided extra engaging returns attributable to rising rates of interest, with little or no capital danger. 

Nonetheless, as additional UK rate of interest cuts loom, the yields on these fixed-income investments might shrink, making dividend shares extra compelling.

Aviva shares have outperformed their friends currently

On the identical time, the US inventory market, significantly its tech-heavy Nasdaq, has surged to file highs. However as Wall Avenue works out what to make of shock Chinese language AI entrant DeepSeek, that will change. We’ll see. Traders haven’t totally absorbed that shock but.

However with S&P 500 valuations stretched, we may see a shift again in direction of unloved and undervalued UK shares. The FTSE 100, with its rollcall of regular dividend payers, might lastly get the popularity it deserves.

FTSE insurers have struggled currently, however there’s one notable exception. Insurer and asset supervisor Aviva (LSE: AV). Its shares have climbed 18% during the last yr. Over 5 years, they’re up greater than 30% (with dividends on high). Regardless of these positive factors, they give the impression of being moderately valued.

The Aviva share price trades at a price-to-earnings (P/E) ratio of lower than 14, barely under the FTSE 100 common of round 15. That’s not grime low cost, but it surely’s fairly good for an organization with a powerful market place and strong financials.

It at the moment provides a trailing yield of 6.5%, however analysts forecast this can rise to six.9% in 2025 and a formidable 7.4% in 2026. 

Naturally, there are dangers. Forecast dividend cowl’s skinny at simply 1.4. Whereas not dangerously low, it I’d like a much bigger cushion towards potential earnings fluctuations. Aviva’s monetary power reassures me. Its Solvency II shareholder cowl ratio stands at a strong 195%, reflecting a powerful steadiness sheet and capital place.

Price contemplating as a long-term maintain?

The corporate’s Q3 2024 outcomes, revealed on 14 November, confirmed normal insurance coverage premiums surging 15% to £9.1bn. Wealth internet flows additionally elevated 21% to £7.7bn, reflecting robust demand for Aviva’s funding merchandise. 

Importantly, the corporate’s working revenue’s on monitor to hit £2bn in 2026, reinforcing its long-term development potential.

The share price may retreat within the brief time period. Aviva operates in a mature and aggressive market at a tough time. Customers are struggling and this might hit insurance coverage premiums. Inventory market volatility may punish its asset administration arm.

So I wouldn’t count on wonders. Any investor contemplating Aviva ought to solely purchase with the goal of holding for years, and ideally many years, to present their dividends time to compound and develop.

I don’t maintain Aviva and gained’t purchase it. That’s purely as a result of I have already got an enormous stake in two FTSE 100 rivals, Authorized & Normal Group and Phoenix Group Holdings. Each have trailed Aviva badly since I purchased them. I’m crossing my fingers they’ll put that proper.