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For years, the Aviva (LSE: AV) share worth couldn’t catch a break. Now it’s flying, up 23.76% within the final 12 months and 33.79% over 5 years.
That’s a fairly nifty return for a longtime FTSE 100 blue-chip working in a mature and aggressive sector. Particularly as my figures solely present share worth progress. Throw in Aviva’s ultra-high dividend, and the 12-month complete return is nearer to 30%. Over 5 years, buyers can be virtually 70% to the nice.
At present, Aviva shares include a trailing yield of 6.81%. That’s forecast to hit 7.25% in 2024 and seven.4% in 2025.
Can it proceed to beat its FTSE 100 rivals?
Right here’s my first quibble. Dividend cowl is skinny, at round 1.2. I favor it to be nearer to 2 occasions earnings. That raises questions over whether or not shareholder payouts are sustainable. However analysts seem to assume so, judging by these rising yield forecasts.
The board felt assured sufficient capable of hike the full-year 2023 dividend 7.7% to 33.4p per share. Aviva has now returned greater than £9bn in capital and dividends to shareholders over simply three years. And it lately launched a brand new £300m share buyback programme.
Making sufficient cash to develop dividends doesn’t seem like an issue. First-half income to 30 June jumped 58% to £654m, with working income rose 14% to £875m.
And as soon as once more, the board appeared snug climbing the dividend, with the interim payout elevated by 7% to 11p.
Aviva is performing properly throughout two key markets – common insurance coverage and insurance coverage, pension and retirement gross sales. It has a strong stability sheet, with a Solvency II cowl ratio of 205%, though it slipped by 2 share factors.
It additionally has an enormous alternative in bulk annuity gross sales, the place it “secured wonderful volumes of £5.5bn at robust margins” in 2023. Nevertheless, this can be a aggressive space, with Authorized & Basic Group, M&G and Simply Group simply a few of these eyeing the sector.
It’s beating rival blue-chips
Additional rate of interest cuts could also be a blended bag. It’ll make right now’s whopping yield much more enticing, as financial savings charges and bond yields retreat, and enhance funding sentiment typically. Nevertheless, I’m fearful that falling rates of interest may hit an annuity gross sales, which have loved a bump from right now’s greater charges. That would eat into revenues and sentiment.
As a rule, I’m cautious of shopping for shares on the again of a powerful run just like the one Aviva has simply loved. I’m questioning how a lot gasoline it has left in its tank. A market downturn would hit the worth of its funding portfolio, hitting the corporate’s stability sheet and investor sentiment.
With the inventory buying and selling at a modest 13.81 occasions earnings, just one factor is holding me again. I even have huge holdings in FTSE 100 rivals Authorized & Basic Group and M&G. They’ve been a bit garbage, frankly, falling 0.39% and rising 3.46 respectively over the past 12 months.
I again the improper horses, at the very least thus far, however as I stated, investing is cyclical. I want I’d purchased Aviva, however I’ve made my selection and can stick to L&G and M&G.
