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Years, i Aviva (LSE: AV) share price could not catch a break. It is now flying, up 23.76% over the past 12 months and 33.79% over the five years.
That's a pretty good return on investment FTSE 100 a blue-chip operating in a mature and competitive sector. Especially since my statistics only show stock price growth. Throw in Aviva's very high dividend, and the 12-month total return is close to 30%. In five years, investors will be about 70% positive.
Today, Aviva shares come with a trailing yield of 6.81%. That is predicted to reach 7.25% in 2024 and 7.4% in 2025.
Can it continue to beat its FTSE 100 rivals?
Here is my first problem. The dividend cover is small, about 1.2. I prefer it to be closer to double profit. That raises questions about whether shareholder payouts are sustainable. But analysts seem to think so, judging by those rising yield forecasts.
The board felt confident enough to raise the dividend for the full year 2023 by 7.7% to 33.4p per share. Aviva has now returned more than £9bn in capital and dividends to shareholders in just three years. It has also recently launched a new £300m share buyback programme.
Making enough money to raise dividends doesn't seem like a problem. Profit for the first half to 30 June jumped 58% to £654m, while operating profit rose 14% to £875m.
Also, the board also appeared free to increase dividends, with the interim dividend rising 7% to 11p.
Aviva does well in two key markets – general insurance and insurance, pensions and retirement sales. It has a strong balance sheet, with a Solvency II coverage ratio of 205%, albeit down 2 percentage points.
It also has great potential for bulk sales, where available “delivered excellent volumes of £5.5bn on strong margins” in 2023. However, this is a competitive environment, with Legal and General Group, IM&G again Just Group some of those looking at this field.
It beats the green chips competitor
Another interest rate cut could be a mixed bag. It will make today's high yields more attractive, as savings rates and bond yields fall, and boost investment sentiment in general. However, I am concerned that the drop in interest rates may affect sales for the year, which has enjoyed a rebound from today's highs. That can eat into income and emotions.
As a rule, I am wary of buying shares after a strong run like the one Aviva has recently enjoyed. I wonder how much gas is left in its tank. A market downturn will affect the value of its investment portfolio, hitting the company's balance sheet and investor sentiment.
With the stock trading at a low of 13.81 times, there is only one thing holding me back. I am also heavily involved in FTSE 100 competitors Legal and General Group again IM&G. They were a bit rubbish, to be honest, down 0.39% and up 3.46 respectively last year.
I'm backing the wrong horses, at least so far, but like I said, investing is cyclical. I wish I would have bought Aviva, but I have made my choice and will stick with L&G and M&G.
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