What’s Stopped Me From Buying Aviva plc Today

Royston Wild considers the investment case for Aviva plc (LON: AV).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I am looking at Aviva (LSE: AV) (NYSE: AV.US) and deciding whether to add the insurer to my personal stocks portfolio.

Turnaround strategy yielding promising results

Aviva announced at the start of the month that its operating profits edged 5% higher in the first six months of the year, to £1.01bn, helped by a 9% reduction in operating expenses to £1.53bn.

Earnings have worsened in each of the past five years since the 2008/2009 credit crunch, although the company has initiated an ambitious transformation plan to address the issue of crumbling profits. The company has implemented strict cost-cutting measures to help get its financials back on track, including sizeable asset divestments and restructuring steps across the group.

Encouragingly, the level of new business surged during January to June, with values up 17% to £401m. New business value in the core UK market rose 16% between January and June, to £211m, while France, Turkey and Asia also reported massive leaps in new activity.

Financials expected to maintain uptrend

Indeed, City analysts expect Aviva’s transformation policy to turbocharge earnings from this year onwards. Losses per share of 15p last year are anticipated to swing back into positive territory this year, with earnings per share of 41p predicted. Earnings are then expected to march to 47p per share in 2014, a 13% on-year increase.

And the insurance giant currently trades on P/E ratings of 9.6 and 8.5 for 2013 and 2014 respectively. These readings represent massive discounts to the average prospective multiple of 14.1 for the life insurance sector and 16 for the FTSE 100.

Time to target other spectacular dividend stocks

Less encouragingly for income investors, Aviva is expected to follow last year’s full-year dividend dip, to 19p per share from 26p in 2011, with another drop this year to 16p per share. City brokers project that the payout will once again move higher next year, however, albeit to a marginally better 16.7p.

Still, these predicted payments come with yields of 4% and 4.2%, comfortably above the 3.2% average from Britain’s 100 largest firms. But dividends still lag the forward 4.5% readout for the entire life insurance sector.

Aviva warned in this month’s financials that its turnaround strategy is still at an early stage. And while the issue of increased competition across its key markets, and choppy results at its overseas operations, continue to hang heavily, I think that the firm’s recent upward momentum is still at risk of substantial pressure at some point. I for one will be looking for signs of a more concrete turnaround before stashing my cash in the insurance firm.

Regardless of your views on the insurance leviathan, I reckon that you should check out this brand new and exclusive report that singles out even more FTSE 100 winners to really jump start your investment income.

Our “5 Dividend Winners To Retire On” wealth report highlights a selection of incredible stocks with an excellent record of providing juicy shareholder returns. Among our picks are top retail, pharmaceutical and utilities plays, which we are convinced should continue to provide red-hot dividends. Click here to download the report — it’s 100% free and comes with no further obligation.

> Royston does not own shares in Aviva.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »