Better buy for September: Aviva (LSE:AV) or Rolls-Royce (LSE:RR)?

Both Aviva and Rolls-Royce shares have had a turbulent 2020 and 2021. Both companies are trying to turn things around for shareholders, but which one would I buy for September 2021?

| 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.

Blue question mark background and dark space

Image source: Getty Images

Rolls-Royce (LSE:RR) and Aviva (LSE:AV) are FTSE 100 members that are popular investments. Which is the better buy for my portfolio in September?

Will Rolls-Royce shares fly?

The coronavirus pandemic hurt Rolls-Royce. The company makes the bulk of its revenues from selling and servicing jet engines, and that revenue evaporated last year. Although more planes are flying today, estimates range from next year to 2035 for when air travel will recover completely. Rolls-Royce engines find themselves in wide-body planes, with a narrow-body offering coming in 2030. It seems likely that short-haul travel will recover faster than long-haul which does not benefit Rolls-Royce.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

During the pandemic, Rolls-Royce raised billions in equity and debt and cut its dividend to shore up its balance sheet. It has cut its workforce and cost base, focused on efficiency, and sold some businesses to raise cash. Things might be starting to turn around. Jets are flying again, and the company’s defence and power segments are performing well. Rolls-Royce made an operating profit of £307m in the first half of 2021. That is better than the £1,630m loss reported a year ago.

But, what would a turnaround for Rolls-Royce look like? In my last article on the company, I wrote that I was concerned that a return to pre-pandemic performance is not really a win for Rolls-Royce investors. Operating and gross margins had declined since 2015, as had the Rolls-Royce share price and the dividend. The company has turned a profit twice since 2015. A return to that kind of form is not something I could get excited about.

Can Aviva reassure investors?

The Aviva share price had been declining since 2017 before the pandemic knocked it for six and forced a dividend cut. Revenues fell sharply in the first half of 2020 at Aviva before recovering by the year’s end. Although they have dipped again in the first six months of 2021, investors don’t seem to have noticed.

That might have something to do with the £4bn payout they have been told to expect to receive by the end of next year. That will start with an immediate £750m share buyback. The cash has come from the selling of non-core businesses. The disposal spree started in the middle of 2020 and, eight sales later, finished up in March of this year.

Aviva shareholders like their dividends. Growing the dividend over time will keep them on board. Selling non-core businesses and using the proceeds to reduce the share count is a smart move. It means the absolute cash dividend expense can fall, while the dividend per share can actually rise. Aviva expects its dividend to grow in the low to mid-single digits. Special dividends have been hinted at if there is capital to spare above certain regulatory limits and debt reductions remain on track. But, that does depend on the refocused, smaller, and perhaps less diversified Aviva performing as well as expected.

I think Aviva is the better buy for September 2021. The dividend yield is around 5%, there is support for the share price from the buybacks, and the company has completed its turnaround plans. Aviva has trimmed down and refocused on its more profitable markets. I think Rolls-Royce, on the other hand, needs a complete overhaul, which will be more uncertain and longer-term than for Aviva. 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies still trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

James J. McCombie 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.

More on Investing Articles

macro shot of computer monitor with FTSE 100 stock market data in trading application
Investing Articles

This FTSE 100 stock is down over 30% in 12 months! Is now a good time to buy?

Jabran Khan delves deeper into this FTSE 100 stock that has seen its share price drop substantially in the past…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

I’d buy this crashed FTSE 100 share for its near-7% dividend yield!

These five FTSE 100 shares have crashed, losing 18% to 25% of their value in one month. But I'd buy…

Read more »

Smiling senior white man talking through telephone while using laptop at desk.
Investing Articles

How I’d invest a Stocks and Shares ISA with a 10-year time frame

Our writer explains how he focusses his Stocks and Shares investment choices by using a long-term perspective.

Read more »

UK money in a Jar on a background
Investing Articles

3 reasons to consider the 7% Legal & General dividend yield

The Legal & General dividend yield of 7% is one reason our writer would consider buying the shares for his…

Read more »

macro shot of computer monitor with FTSE 100 stock market data in trading application
Investing Articles

Should I buy this FTSE 250 defensive stock?

Jabran Khan is looking for defensive stock options for his holdings and delves deeper into this FTSE 250 food manufacturing…

Read more »

pink toy piggy money box on yellow background
Investing Articles

5 ‘no-brainer’ FTSE 250 shares to buy today

I'm seeing a lot of attractive dividend shares in the FTSE 250 right now. This approach gives me some very…

Read more »

Windmills for electric power production.
Investing Articles

The SSE share price slumps by 11%! Should I buy today?

The SSE share price tumbled today after talks of a windfall tax on electricity generators. Our writer considers if it’s…

Read more »

British Pennies on a Pound Note
Investing Articles

3 penny shares I own instead of Woodbois

Our writer prefers these three penny shares over hot stock Woodbois -- which is why he has bought them.

Read more »