Is the Aviva share price on the verge of recovery?

The Aviva share price has been creeping back. What does the latest Q1 update say about the long-term future?

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The Aviva (LSE: AV) share price has slowly been picking up, but it’s still down around 25% over the past five years. Still, with the positive progress so far in 2022, are we at the start of a long-term recovery for Aviva shares?

The insurer’s first-quarter update showed steady progress. Aviva reckons it is on track to hit the upgraded targets it set out with 2021 full-year results in March. The company is also in the process of completing its capital return programme.

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Aviva share price drop

Investors might panic when they look at the Aviva share price chart over the past 12 months though, and see that sharp drop.

But it’s just the net result of a share consolidation plus a new B share scheme as part of the company’s return of capital to shareholders. I’ve checked my account, and my slice of that return is on its way.

Long-term outlook

What I want from Aviva is a reliable passive income stream. I expected a few years of restructuring. But now that process is nearing completion, how are things looking?

Aviva reiterated its dividend guidance, not just for the current year but also next year. The company expects to pay about 31p per share for 2022, followed by 32.5p for 2023.

After the capital return and share consolidation, that amounts to yields of 7.6% and 7.9% respectively, on the Aviva share price at the time of writing. And it does look like the liquidity to achieve these goals should be there.

Liquidity ratios are strong, and cost savings are ongoing.

Aviva said: “We remain confident and on track to meet the cash remittance, own funds generation, and cost reduction targets outlined at our FY 2021 results presentation.”

What’s the catch?

There’s all the cash being returned, and some ambitious dividend plans. At the current Aviva share price, this seems like a no-brainer buy to me. So where’s the catch?

Those dividends are by no means guaranteed. When hard times hit, financial firms can be among the first to suffer. Aviva slashed its dividend during the pandemic, for example.

And profits still fell In 2021. It was partly down to the disposal of non-core businesses. But adjusted operating profit from continuing operations declined by 10%. Aviva is not back to growth yet.

The 2021 dividend was covered almost 1.5 times by earnings. For me, that’s enough, but only just. And until Aviva’s debt reduction plans reach completion, there’s a bit of extra risk there too.

Emotive nonsense

I can’t ignore the rather appalling sexist remarks made about CEO Amanda Blanc at the recent AGM. Turning your nose up at a company because it’s run by a woman is morally reprehensible. But it’s financially dumb too, isn’t it?

Under Ms Blanc’s leadership, Aviva has been doing exactly what institutional investors have wanted for years. Still, in the long term, fundamentals will surely win out over bigotry.

The insurance sector clearly faces risks from worsening global economics. But I’m holding my Aviva shares. I might even buy some more.

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