Aviva (LSE: AV.) is a dividend stock that I want to take a closer look at, given its enticing yield and falling share price. Is now a good time to buy some shares for my holdings?
Insurance and financial services
Aviva is one of the largest insurance companies in the UK and also provides a range of other financial services such as savings and retirement products. It also has operations throughout Europe and Canada.
So what’s happening with Aviva shares? As I write, they’re trading for 374p. At this time last year, they were trading for 442p, which is an 18% drop over a 12-month period. Aviva shares are down 11% from 139p in February to current levels. Soaring inflation and rising interest rates have pushed down many stocks. Furthermore, a cost-of-living crisis has developed in the UK, which could hinder consumer spending.
The bull and bear case
As with any dividend stock, I start by looking at the dividend yield. For Aviva, this currently stands at 8.5%. This is higher than the FTSE 100 average of 3%-4%. However, I do understand that dividends are never guaranteed.
Next, Aviva shares look good value for money on a price-to-earnings ratio of nine, which I consider to be an attractive valuation. Its current ratio is lower than the FTSE 100 index average of 14.
Finally, I’m buoyed by Aviva’s position in its sector. As one of the leading businesses in the insurance space, it has a great profile and presence. Furthermore, international exposure can help boost performance. In addition to this, Aviva’s business structure, with its four main divisions, are all aimed at growth, which is pleasing.
From a bearish perspective, Aviva and other shares in the same sector all seem to be negatively impacted by the current economic outlook in the UK. A weakened economy and macroeconomic volatility is what has led to the shares dropping, in my opinion. Linked to this, weakened consumer spending on non-essential insurance and wealth management products could hinder performance as well as investor sentiment and returns.
Finally, the insurance, savings, and retirement sector is extremely competitive with many businesses vying for the same customers to enhance their performance.
A dividend stock I’d buy
After taking the pros and cons into account, I like the look of Aviva shares. Although I don’t currently have cash to invest, when I do, I would buy some Aviva shares.
Aviva’s position in the insurance and financial services market is an enviable one. Furthermore, an enticing dividend yield and attractive valuation helped me make my decision. Furthermore, it also has a solid balance sheet and is focusing on growth. Part of this includes investing in digital channels to keep up with the times. This can help boost levels of return too, in my opinion.
Overall Aviva’s share price fall has created an opportunity to pick up shares cheaper than before. I’m not worried by the current short-term volatility as I invest for the long term, which I define as a five to 10 year period.