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Aviva’s share price is rising. Should I buy the stock now?

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Aviva (LSE: AV) shares have had a good run recently. This year, the share price is up 21%. Meanwhile, over a 12-month time horizon, the stock’s up 28%.

Is this a FTSE 100 stock I should consider for my own investment portfolio? Let’s take a look at the investment case.

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Can Aviva’s share price keep rising? 

Aviva’s recent full-year results for the year ended 31 December 2020 show the company held up reasonably well during Covid-19.

For example, in the group’s UK & Ireland Savings & Retirement division, it generated record net flows of £8.5bn last year, up from £7.5bn in 2019. Meanwhile, in the workplace savings space, it finished the year with assets under management of £81bn, up from £71bn in 2019. And in bulk annuities, the group generated record sales of £6.0bn, up from £4bn in 2019. Overall, IFRS profit for the year was up 9% to £2.9bn. This performance is encouraging, in my view.

It’s worth noting Aviva advised in its full-year results that it’s made major steps in simplifying its business. Going forward, it’s going to focus primarily on the UK, Ireland and Canada. The company says that in these ‘core’ markets it has market-leading positions and a “clear path to win.” Its goal is to generate sustainable growth.

Dividend history 

While this all sounds promising, I do have some concerns about Aviva shares. One is in relation to the group’s competitive advantage. This is one of the first things I look for when analysing a company. Aviva does have a well-known brand. However, it’s not as well-respected as some other brands in the insurance/asset management industries.

Another concern is the company’s dividend history. When I’m investing in large-cap stocks, I go for companies that have excellent long-term dividend growth track records.

Aviva’s track record here is inconsistent. Prior to Covid-19, the company had a string of dividend increases and for FY2018, it paid out a total of 30p per share. However, for FY2019, the dividend was reduced to 15.5p per share – a near 50% reduction.

Aviva recently lifted its dividend for FY2020 to 21p per share, which is a significant increase from the year before. That equates to a healthy yield of 5.3% at the current share price. However, 21p is still 30% below the 2018 payout. It’s worth noting that rival Legal & General didn’t cut its dividend during Covid-19.

Valuation

Turning to the valuation, Aviva shares currently trade on a low forward-looking price-to-earnings (P/E) ratio of about 7.3. That valuation’s certainly undemanding.

Should I buy Aviva shares?

Putting this all together, I think Aviva could potentially have appeal from a value investing perspective. The stock looks quite cheap at the moment and if the company can continue making progress towards its goals, I think its share price could rise.

Having said that, Aviva isn’t a stock I’d buy personally today. I prefer to invest in companies with clear competitive advantages and consistent long-term growth track records.

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Edward Sheldon owns shares in Legal & General Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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