Interest in Aviva (LSE: AV) shares has spiked among investors using Hargreaves Lansdown’s platform.
The FTSE 100 business accounted for 4.13% of all buy orders with Hargreaves Lansdown customers in the last seven days. This put it third on the list of the most popular stocks.
Should I buy the life insurance company for my own portfolio? Here I’ll drill down into why I would (or wouldn’t) invest in this UK share today.
All-round value
The Aviva share price has slumped by a quarter in 2022 to current levels. As a value investor this descent makes it a share I’m paying close attention to.
You see the business trades right now on a forward price-to-earnings (P/E) ratio of 9 times. In addition to this, its dividend yield for 2022 sits above 7.5%.
Speaking of dividends, the predicted payout of 31.1p per share for this year isn’t that well covered by predicted earnings of 45.4p. But Aviva’s cash-rich balance sheet should give it the ability to meet City estimates.
Cash machine
As a matter of fact, its financial strength is one of the reasons I’m considering buying the company.
Its Solvency II Capital Ratio jumped to an impressive 213% as of June. This is more than twice the regulatory requirement and was driven by solid cash generation and positive market movements.
Not only is this predicted to drive more market-beating dividends. Aviva’s excellent liquidity has raised the prospect of additional share buybacks too, providing a boost to earnings per share.
Chief executive Amanda Blanc announced in August that “we are increasingly confident in Aviva’s prospects and anticipate commencing additional returns of capital to shareholders with our 2022 full-year results.”
A top stock I‘d buy
| Aviva’s share price | 408.3p |
| 12-month price movement | -21% |
| Market cap | £11.3bn |
| Forward price-to-earnings (P/E) ratio | 9 times |
| Forward dividend yield | 7.6% |
| Dividend cover | 1.5 times |
The balance sheet has benefited from huge asset sales in recent years. In fact the sale of its operations outside the UK, Ireland and Canada boosted the balance sheet by £7.5bn.
I’m aware of how the sale of its overseas divisions could endanger future profits and dividend growth. A reduced geographic footprint gives it fewer customers to aim for.
However, I still expect Aviva’s earnings to grow strongly over time.
Firstly, the business has terrific structural opportunities as populations in its markets age. The Office for National Statistics expects the number of over-65s in Britain to rise 50% between 2016 and 2035. This could turbocharge demand for Aviva’s retirement products and other financial services.
The company can also use its considerable balance sheet to acquire assets that boost profits. Blanc commented in August that “surplus capital above [our] target level of 180% is available for investment in the business and tactical bolt-on M&A to drive further growth.”
At current prices I think Aviva could be too cheap to miss. It’s a top stock on my shopping list today.
