It has been a busy few years for insurer Aviva (LSE: AV). The company has been streamlining its portfolio by selling off businesses. Last week unconfirmed rumours about it being a possible takeover target boosted the shares, although the company has not commented. But how have Aviva shares performed in the longer term?
Long-term decline
Despite recent investor enthusiasm for the investor turnaround at Aviva, the performance has been modest. Over the past year, the shares have moved up just 1% in price.
A share consolidation last year makes longer-term comparisons complicated, but the trend has not been encouraging. Aviva shares today, allowing for such share consolidation, are worth just a quarter of the peak they hit a quarter of a century ago in 1998.
That weak performance helps explain why the company’s current management has been reorganising the business and trying to play to its strengths by focussing on core markets.
Attractive dividend
A share price gain or loss is not necessarily the only factor in a share’s return, though.
Aviva also pays dividends I see as attractive. The current yield is 7.6%.
If I had bought 1,000 Aviva shares a year ago, I would have received £318 worth of dividends so far.
One year return
A year ago, 1,000 Aviva shares would have set me back £4,004. Between the 1% price gain and dividend, my holding and dividend cash would now be worth £4,362.
I see that as decent.
That said, the return has largely been driven by the dividends. These can be a useful source of income for an investor. But the long-term history of a declining Aviva share price is a reminder that a high dividend yield should never be considered in isolation.
Smart investors look at the future potential of the dividend as well as considering possible drivers for the share price to go higher or lower.
Missed opportunity or bargain buy?
As I did not buy Aviva shares a year ago, the past performance is academic to me. After all, that performance is no guide to the future of the shares.
However, I continue to see Aviva as attractively priced. The company benefits from a strong business in its home market and a powerful brand. It has a big customer base and the reorganisation has given it more focus on markets where it has critical mass.
There are risks, of course. As fellow UK-based insurer Direct Line has shown, inflation can push up the cost of settling claims, threatening profitability. Geographic focus can be a plus point, but it also means Aviva is less diversified than it was previously. That makes it more sensitive than before to the overall performance of the UK insurance market.
Yet the high yield from this FTSE 100 business definitely appeals to me. If I had spare cash to invest today, I would be happy to add Aviva shares to my portfolio for the long term.
