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The Aviva share price: 1 reason to buy and 1 reason to sell

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Aviva (LSE: AV) has been through some upheaval since I bought my shares. I thought it was coming out of the financial crisis well enough, but the Aviva share price has since suffered a lengthy poor spell. It’s partly because Aviva had been seen as a bit bloated for some time.

The company launched a serious restructuring to slim itself down. And that’s one of the reasons I often consider selling. If a company is reshaping itself, especially if it’s pursuing it aggressively, it’s not still the same company I bought.

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When that happens, I have a simple approach. Forget everything I know about the company, and approach it from afresh. If I conclude that I’d buy the new company, hold the shares. And if I wouldn’t, sell.

But that plan kind of falls apart a bit when I really can’t see what the outcome is going to be. I’m bad at knowing when to sell anyway. And I find it very hard to sell when I’m still receiving handsome dividends, even if the Aviva share price has fallen some way from my purchase price.

Why would I buy?

So as long as I’ve thought Aviva was doing the right things and heading in the right direction, I’ve held on. And that brings me to my reason to buy — those dividends.

Even up to 2018, I was still getting a 6.3% yield on my original purchase. So even though the shares had fallen and I was sitting on a capital loss, that’s still a pretty good return. Even today, I’m down 15% since 2015. But years of dividends have made up for that.

And I really don’t care where a share price goes until I come to sell. Do I think the Aviva share price will be back into profit territory for me when that day comes? All I really have to go on is Aviva’s current valuation.

Future dividends

My precious dividend was slashed in 2019, as the whole financial sector was forced to withhold payments. And that damaged the share price further. But the annual payments have already come bouncing back in 2020. And Aviva’s balance sheet, cost reductions, and cash generation all convince me that my income stream is firmly switched back on again.

Meanwhile, on 2020 earnings per share, I’m looking at a trailing price-to-earnings of under six. That’s less than half the long-term FTSE 100 average.

What’s the downside? Well, Aviva has disposed of a lot of its international operations, to focus on the UK, Ireland, and Canada. Those are leaner businesses. But that considerably widens the company’s exposure to the UK economy, which could well be facing a few fragile years.

Aviva share price outlook

The insurance sector can show cyclical valuations too, and others are down at similar levels. It’s all the uncertainty, and I expect continuing Aviva share price weakness.

But on the whole, I’m glad I didn’t sell when Aviva set out to reshape itself, because I think it’s gone in the right direction. And while I see prospects for steady dividends, Aviva will remain a top-up candidate for me.

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Alan Oscroft owns shares of 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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