8.23% yield and dirt cheap! The Aviva share price looks like a no-brainer buy to me

Some investors have lost interest as the Aviva share price struggles but I can hardly take my eyes off the brilliant dividend it now pays.

| 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.

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

The Aviva (LSE: AV) share price has been grinding lower for years, but lately it’s been showing signs of life. Is now the time to buy before it climbs higher?

Aviva shares have fallen 15.81% over the last five years. The rate of fall has slowed lately, but they are still down 4.22% over 12 months. That might suggest a company in decline, but I don’t see it like that. It’s more like a company operating in an out-of-favour sector. Its nearest rival, Legal & General Group, is showing a similar trajectory. It’s down 15.02% over five years and 7.06% over one year.

Both stocks offer brilliant income as a result, with Aviva yielding 8.23% and L&G paying 8.68%. I’ve already made my mind up about L&G. I decided it was a no-brainer buy, and bought it twice in the summer. I haven’t bought Aviva, though. Is now the time to dive in?

The yield looks built to last

The Aviva share price is up 6% in the last month, but I hardly think I’ve missed my opportunity. There’s plenty more scope for growth quite aside from the yield, which is expected to hit 8.89% in 2024. That’s a dizzying rate of income, but is it sustainable?

Dividend cover is thin at just 1.3 times earnings for 2023, some way below the two times seen as ideal. Cover has been thin for a while, though, and Aviva’s dividends have kept on coming.

In fact, the board recently lifted the dividend per share by 8% to 11.1p, after first-half operating profit jumped 8% to £715m. It now expects full-year 2023 group operating profit to increase between 5% and 7% from last year’s £1.35bn.

The group’s wealth and retirement operations should do better once investor sentiment stabilises and markets start to recover. I would pin the recent jump in its share price down to the Bank of England’s surprise decision to hold base rates in September, amid a general feeling that they have now peaked, at least in the UK.

Shouldn’t they be doing better?

Aviva has also been making a splash in bulk purchase annuities, as more pension schemes look to mitigate risks. Plus it has diversification through general insurance, where first-half premiums rose 12% to £5.27bn despite today’s tough motor market.

I can see plenty of reasons to buy Aviva shares but I also have to ask myself this. If they’re so great, why isn’t everybody after them? One factor may be that global investors are down on the UK market generally. Personally, I think the gloom has been overdone.

Investors have also been chasing whizzy growth stocks, particularly US tech, although that trend seems to have run its course. Some investors now prefer bonds to shares as yields hit 6% with less risk. I don’t share their excitement.

I think Aviva’s sky-high yield is much more attractive. Once interest rates peak and retreat, those bond yields will fall while Aviva’s dividend may carry on climbing. At the same time, its share price may finally put on a spurt. Having applied my brain to the task, I’d happily buy Aviva today.


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 assessed. Consider taking independent financial advice.

Harvey Jones has positions in Legal & General Group Plc. 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

Abstract bull climbing indicators on stock chart
Investing Articles

Could the Chancellor’s Leeds Reforms trigger a bull market for UK stocks?

More competitive lending and greater interest in shares could help kick start growth for UK businesses. But could it also…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

I think this AI stock could double before Palantir

Palantir stock is up almost 100% this year. As a result, it now sports a market cap of $350bn meaning…

Read more »

Elevated view over city of London skyline
Investing Articles

As the FTSE 100 hits an all-time high, is it time to reconsider the S&P 500?

Christopher Ruane explains why a surging FTSE 100 has not yet made him focus more on the potential of S&P…

Read more »

GSK scientist holding lab syringe
Investing Articles

The FTSE 100 sits at a record high. But some stocks still look dirt cheap!

The usually sluggish FTSE 100 is having a surprisingly good year. But our writer feels there are still potential bargains…

Read more »

Close-up of British bank notes
Investing Articles

With a £20k Stocks and Shares ISA, here are 3 ways an investor could target a £2k annual passive income

Our writer thinks there is more than one way to try and skin a cat when it comes to earning…

Read more »

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

Up 350% in 3 years but my favourite FTSE growth share is still on a low P/E of just 10!

Harvey Jones can't tear his eyes away from this former penny stock turned growth share superpower. But can it carry…

Read more »

Santa Clara offices of NVIDIA
Investing Articles

Up 83% in months, could Micron stock be the next Nvidia?

Chipmaker Micron Technology's stock price has surged by over 80% in just a few months. Could this be a possible…

Read more »

Tesla car at super charger station
US Stock

£1k invested in Tesla stock at the start of the year is currently worth…

Jon Smith reveals the performance of Tesla stock in 2025 and explains why he doesn't believe the move lower is…

Read more »