Why I Still Think Aviva Plc Is A Buy

Although many commentators are questioning its prospects, I still think Aviva plc (LON: AV) is worth buying.

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I must admit that I am often left puzzled by comments made surrounding whether share prices are at all-time-highs or all-time-lows.

For instance, it may be stated in the financial media that a company’s shares have never been higher than they currently are, implying that the chances of them continuing to go up are slim because it is unchartered territory.

However, if this were true then there would be no new highs or lows; share prices would trade within a range indefinitely and would be far more predictable. Simply put, they don’t and a new high can be followed by another new high, just as a new low can be followed by another new low.

So, I was slightly amused to note recently that Aviva (LSE: AV) (NYSE: AV.US) is currently trading at its two-year high. The reason for improvements in the share price seems to be a new strategy that puts the focus back on sustainability and building a more predictable business. This strategy seems to be progressing well.

There have also been rumours that the company will look to increase its dividends per share by as much as 20-25% per annum over the next few years. While this has not been confirmed by the company, a brisk increase certainly seems plausible, given that the dividend was slashed by just over 40% fairly recently.

However, to not buy shares right now, simply because they are trading at a two year high, would be rather illogical. In other words, the company seems to be sorting itself out and ‘on the up’ so surely investors would seek to benefit from that in future years? If anything, now seems to be a good time to buy, with the fact that shares are at a two-year high being evidence that market sentiment is improving steadily.

In addition, shares currently trade on a fairly low price-to-earnings ratio of 10.2. This compares favourably to the FTSE 100 on 15 and to the wider financials industry group on 19.3. Furthermore, earnings per share are forecast to grow at an annualised rate of 8.5% over the next two years — hardly sluggish by anyone’s standards.

As ever, the yield is attractive. Shares currently have a prospective yield of 3.8% and, as mentioned, dividends per share could be heading north rather briskly.

Of course, you may already hold Aviva or may be looking for other income-producing shares. If, like me, you are concerned about inflation and frustrated with low bank savings rates then I’d recommend you take a look at this exclusive report.

It details The Motley Fool’s Top Income Share For 2013 and is completely free to view.

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> Peter owns 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.

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