The Aviva (LSE: AV.) share price has been gaining in the past few months. But it’s still some way below its highs of 2022, and down 20% in five years. So where might it go in the next five years?
And what might drive the share price?
Top dividend stock
I bought Aviva shares for the dividends. And a yield of 7.2% is just great. But I did also think we’d see some price gains.
Still, I mostly want the income, and I don’t intend to sell any shares for quite some time yet. So in a way, the share price doesn’t matter.
I do think we should keep a track of our stock valuations though. Some day, it might even suggest we should sell and move the cash somewhere else. I mean, wouldn’t it be great for Aviva shares to become overvalued?
Shares too cheap?
Forecasts show a price-to-earnings (P/E) ratio of 14, dropping to about 9.2 by 2025. Is that cheap? I think so, but it’s hard to be sure with such a cyclical sector.
The average 12-month broker price target is around 500p, which would mean a 15% rise. Now, these targets are often little more than guesses, but it’s nice to see optimism.
What about five years? Let’s guess at 550p, which is about where the Aviva share price was just before the pandemic. Is that plausible? With strong earnings growth on the cards for the next few years, I think it might even be conservative.
Share price drivers
I don’t think the City has built up its confidence in the new-look Aviva yet, as its restructuring plan is largely untested. But I expect a good set of full-year results could help change that, and they should be with us on 7 March.
So far, we have the firm’s 2023 interim statement to go on. And CEO Amanda Blanc said: “Our excellent trading momentum is a direct result of the decisions we have taken over the last three years to re-focus Aviva. Today, Aviva has leading positions in growing markets, providing strong resilience in the current economic climate.”
I know company chiefs say stuff like that all the time. But it looked like the figures were there to back her up.
Latest update
In the firm’s Q3 trading update, Blanc said: “We reiterate our guidance for a total dividend of c.33.4p for 2023, and further regular and sustainable returns of surplus capital.”
For me, that’s all I really want — for Aviva to keep its dividends going, and keep making regular and sustainable returns of surplus capital.
If that keeps up, the share price can only rise in the long term. Can’t it?
What next?
The insurance and investment business is still at an uncertain stage. And it might not take much to send investors running from it again.
But if we buy insurance shares, we expect volatility and we look to the long-term future, don’t we? So, I see ups and downs. But I do think Aviva could have a good five years now. And hopefully more.
