When I see a dividend yield of 6.8% on the table, it makes me think that Aviva (LSE: AV.) share price could be very low.
I guess I'm biased, because I bought a few years ago before the insurance giant went through its recent troubles. And I'm still only getting ahead of the price I paid.
But we have had a modest share price increase of 12% so far in 2024. And I can't help feeling that we could see more upside in the second half.
Hidden discovery
Aviva, along with other insurance stocks, has suffered from painfully weak sentiment over the past few years. I'm not surprised at all, how inflation and high interest rates have affected almost any financial and investment related stock.
But I think the decline masked a surprising turnaround at Aviva. Behind the scenes, in the way the company is run, at least, if not in the stock price.
During the FY results, CEO Amanda Blanc said: “We have made significant progress in 2023. Sales are up, costs are down, and operating profit is up 9%. Our position as the UK's leading diversified insurer, with major businesses in Canada and Ireland, clearly delivers.“
Oh, and the board increased the dividend by 8%.
It continues in 2024
The Q1 review in May was pretty good and brought us the same. General insurance premiums rose 16%, while Aviva saw a 15% increase in its wealth management business.
In this regard, the CEO spoke “continuous strong performance,” and “real hope in 2024.“
Aviva expects to make an operating profit of £2bn in 2026, up 36% from 2023's £1.47m. If everything were to rise by 36%, including revenue, and the price-to-earnings (P/E) ratio remained the same, Aviva's share price could reach 665p by then.
Of course, it often doesn't work that way, and I admit to thinking a little here. So what could go wrong?
Cycle risk
This is a very cyclical industry. And in a good year, I would expect to see a P/E slightly below FTSE 100 average. The 11-year-old's current value looks to be a fair value, at least. In fact, looking at just one year, I would be a little concerned that it might be too high.
A multiple of about nine that will drop to 2026 predictions looks much better. But is there really enough margin of safety in that equation?
With the economy still faltering, and the insurance business up and down, I'm not sure. The policy amount is often not held when people feel the pressure.
Breaking the £5?
However, H1 results are expected on August 14. And if they are good, we can see a rise in the share price.
Could the stock finally slip past 500p by the end of 2024? I think there must be a good chance. But remember that this is more than just an inspired guess. And do your own research.
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