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At over 400p, this is what I’m doing with my Aviva shares

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Aviva (LSE: AV) shares have performed very strongly over the past year, and they have now reached their pre-pandemic price of over 400p. Strong management under Amanda Blanc has enabled this strong performance.

After taking over in July 2020, Blanc has helped reform and simplify the insurance company, selling many of its operations in France, Italy and Singapore. The positive impact of Blanc has been reflected in some very resilient earnings.

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But there is always the risk that the optimism may start to die out soon, and that the shares have reached their peak. Considering this possibility, here’s what I am doing with my position.

Effect of management

Amanda Blanc has wasted no time in making changes to the business. And I’d say these changes were much needed!

Over the past few years, Aviva has struggled with its complex structure, and has seen its share price falter. Blanc has recognised this fact and not been afraid to make big changes to the business.

Late last week, it was announced that Allianz has purchased Aviva’s Polish operations for €2.5bn, subject to regulatory approval. This means that the various sales of non-core units have now generated cash proceeds of €7.5bn. Such a large figure will help the company with debt-reduction plans and the return of capital to shareholders. This deal also lifted the Aviva share price to over 400p and may provide further momentum to the company.

Trading update

Aviva’s recent full-year trading update illustrated that the company has dealt well with the pandemic. Operating profits totalled nearly £3.2bn and this was only a very slight drop from 2019. Following the non-core sales, centre liquidity had also risen by nearly doubled to £4.1bn, demonstrating Aviva’s financial strength. The company also announced a dividend of 21p for the year, currently representing a yield of over 5%. Once the company’s debt pile is reduced, there is scope for this to rise. It is therefore understandable why the Aviva share price has performed strongly recently.

Despite this resilient performance, there are still risks associated with investing in the stock. Like many sectors, the pandemic has impacted insurance due to the necessity of more pay-outs. Although Aviva has performed resiliently in this environment, the continued uncertainty may hinder its performance over the next few months.

What am I doing with my Aviva shares?

Due to its strong management and business plan, Aviva is one of my current favourite stocks on the FTSE 100. As such, I am not selling any of my position just yet. Despite this, at 400p, its shares are not as cheap as they used to be, and I am prepared for a dip in the near future. This means that I’m not buying any more shares either.

For the long term, though, I am optimistic. The firm’s current price-to-earnings ratio is 7.5, and there are intentions to deliver strong shareholder returns over the next few years. For the long haul, I believe that Aviva is therefore a good investment. I’m just waiting for a potential dip before buying any more shares!

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Stuart Blair owns shares in Aviva. 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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