After going nowhere for years, the Aviva (LSE:AV) share price is finally showing signs of life. Nothing spectacular, it has not suddenly become NVIDIAbut then no one should expect a FTSE 100 insurer to turn off the lights. That’s not why investors buy them.
Aviva shares are up 10.78% in the last three months, which isn’t going to make anyone a millionaire on its own. However, I think this is a sign that the outlook is brighter for 2024 and beyond.
The pandemic was tough on Aviva, which canceled its final dividend in April 2020 following a request from regulators as capital markets went haywire. Its stock plummeted (it wasn’t alone in that) and 2022 was another tough year as interest rates soared and stock markets struggled.
brighter days
I am currently loading up my self-investment personal pension (SIPP). I think the markets will regain their mojo as expectations grow about the first rate cut. Once savings rates and bond yields fall, the income paid by blue-chip dividend stocks will look even more attractive than they are today.
Aviva currently yields 7.37%. Markets expect that figure to reach 7.87% in the current fiscal year and rise again to 8.37% in 2024. Of course, no dividend is guaranteed, and the 2023 payout is only covered 1.1 times by the earnings.
However, on November 16, CEO Amanda Blanc declared “I am very confident that Aviva will continue to deliver more for shareholders”. In practice, that means a total dividend of 33.4p for 2023, up 7.7% from last year’s 31p, at a total cost of £915m. Payments to shareholders are set to “low to mid single digit growth” after that.
Nothing is ever 100% certain, but I find that prognosis comforting. Furthermore, even modest share price growth should generate excellent total returns.
I already have exposure
Like any company, Aviva is at the mercy of events. Climate change is a concern as the company spends more on claims following storms Babet and Ciarán. Falling interest rates could hit annuity sales, although it could also boost equity release sales. The NHS’s seemingly intractable problems have done wonders for private health insurance sales.
Buying Aviva shares won’t make me rich overnight, but that’s not my investment strategy. I like to buy solid companies with steadily growing revenues and a loyal customer base, so my returns increase over time.
I prefer to buy stocks when they are cheap. And despite its recent recovery, Aviva’s share price is still 5.8% lower than a year ago. It trades at a modest valuation of 14.6 times earnings.
I see a lot of room for a share price recovery, but there is one thing holding me back. I have already invested a lot of money in rival FTSE 100 insurer Legal and General Groupwhich is much cheaper, trades at 5.9 times earnings and yields more, at 8.44%.
I am careful not to expose myself too much to the financial sector, as I am also a wealth manager. M&G, and that’s the only thing stopping me from buying Aviva shares today. You might still want to take a bite of them, as they look too tempting.
