A 7.6% dividend yield! Is the Aviva share price a bargain not to be missed?

The Aviva share price has recovered well since the 2020 stock market crash. As one of the top FTSE 100 dividend stocks, should I buy?

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The Aviva  (LSE: AV) share price has recovered well since the stock market crash in 2020. This has mainly been driven by Amanda Blanc, who took over as CEO during 2020. She instantly focused the business on the UK and Ireland, through selling several of the company’s international subsidiaries. Further, Blanc has increased shareholder returns, making Aviva one of the best dividend-paying stocks in the FTSE 100. As such, is it time to buy this income stock?

What’s going on with the Aviva share price? 

Investors looking at the Aviva share price chart might be slightly concerned at its recent drop. However, there’s no need to be. Indeed, the drop was prompted by its B share scheme, where the company returned £3.75bn to shareholders. A B share scheme is similar to a special dividend but deemed more tax efficient. This returned the proceeds from the company’s disposals of its international subsidiaries. However, as the cash is no longer on the balance sheet, the large drop in the Aviva share price was expected. 

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To make things slightly more complicated, Aviva also conducted a share consolidation, at a ratio of 76:100. This means that for every 100 shares held by an investor, they received 76 back. This does not affect the value of the firm, however.   

What factors should be considered? 

Despite selling off its international subsidiaries, Aviva continues to perform strongly. For example, in the first three months of 2022, UK & Ireland Life sales were up 2% year-on-year, with particularly strong growth in the annuities sector. The firm also highlighted growth in the General Insurance sector, which achieved its best quarterly sales in a decade. Aviva noted that this was because “people were attracted to the strength of the Aviva brand and the quality of [their] products”.This bodes well for the future. 

There was a slightly less promising update from the wealth management sector, though. In fact, overall sales were down 3% year-on-year and overall assets under management fell 1% to £150bn. This is mainly due to market volatility. However, while this may be a short-term problem, it still points to negatives around the Aviva business model. If this fails to improve, it’s a factor that could strain the Aviva share price. 

But I’m not buying Aviva shares for growth. Instead, it’s establishing itself as one of the most reliable income stocks around. Indeed, this year, Blanc has already promised to raise the dividend to 31p per share, and 32.5p in 2023. This equates to a current yield of 7.6%, one of the highest in the market. 

What am I doing now? 

Market uncertainty can be particularly damaging for insurance firms, as shown when Aviva cancelled its dividend during the 2020 stock market crash. But after its disposals, the firm seems to have a clearer focus. The large dividend payouts are also extremely tempting. Therefore, I’ll continue to add Aviva shares to my portfolio at its current price. 

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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.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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