What might the recent Aviva share price performance tell me as an investor?

Christopher Ruane looks at how the Aviva share price has performed over the past 12 months and considers whether he should buy now.

| More on:

Image source: Aviva plc

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.

Past performance is not necessarily a guide to what will happen in future, in the stock market as elsewhere. But learning how a business has been performing can provide useful information when assessing its current prospects.

Take Aviva (LSE: AV) as an example. By looking back at the drivers for the Aviva share price in the past few months, I think I could make a more informed decision on whether to add the insurer to my portfolio now.

Modest gain

Over the past year, the Aviva share price has moved up but only by 2%.

Still, that is better than the performance during that period of the benchmark FTSE 100 index of which Aviva is a constituent. It moved down 3%.

That sort of price movement reflects the ‘steady as she goes’ nature of the insurance business, arguably. A mainstream insurance business might be expected to perform broadly in line with the economy.

But in fact that is an oversimplification. Fellow FTSE 100 insurer Admiral has gained 16% over the past year, for example. When investing, one needs to pay attention not only to the sector but also the specific company.

Last year, Aviva reported a loss. However, shifting asset prices make it hard to value insurance shares purely on the basis of earnings. The current share price means Aviva has a market capitalisation of £12.4bn. Compared to an operating profit of £0.7bn in the first half of its current financial year, that looks cheap to me.

Where things go from here

The Aviva of today is a different beast to a few years ago.

During that period, it sold off non-core businesses to focus on its main markets, notably the UK.

Has that put it in a better or worse position from an investment perspective?

The concentration on fewer markets has added some risk. If the UK insurance market runs into challenges – for example regulatory pressure to lower premium rates – that could be worse news for the Aviva share price than if the firm had a wider spread of business.

Overall, though, I think focussing on key markets with critical mass where the business has some right to win is a smart move. It means management can focus its attention where it can be most useful.

Aviva has a large customer base, strong brands, and understands the insurance business well. I see those as strong assets that set it up well for profitability over the long run.

The dividend yield of 7% is also attractive to me. I see prospects for ongoing growth in the shareholder payout. The interim dividend grew a healthy 8%. If business continues to go well, I reckon there is further scope for dividend increases over the next few years.

At the current Aviva share price, if I had spare cash to invest in March, I would be happy to add the company to my ISA.

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.

C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Admiral Group Plc. 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

British Pennies on a Pound Note
Investing Articles

1 penny stock I’d buy today while it is 99p

Ben McPoland highlights Windward (AIM:WNWD), a fast-growing penny stock that could benefit from the artificial intelligence revolution.

Read more »

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

This forgotten FTSE 100 gem could be the best bargain on the stock market

The FTSE 100 is full to the brim of high-quality businesses. But this Fool has his eye on this 'forgotten'…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Here’s a FTSE 250 stock I’d put 100% of my money into

If this Fool could buy just one stock from the FTSE 250, Games Workshop would be his choice. Here, he…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

2 reasons Warren Buffett might love this stock, and 1 reason he might avoid it like the plague

Warren Buffett's one of the best stock pickers of all time. But would he approve of Barclays shares? This Fool…

Read more »

Union Jack flag triangular bunting hanging in a street
Investing Articles

Down 28% in a week! What’s going on with the share price of this FTSE 250 British icon?

There’s one stock in the FTSE 250 that took a bit of a battering last week. But I’m not surprised,…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

At around £28.50, Shell’s share price looks cheap to me

Shell’s share price still looks undervalued against its fossil-fuel-focused rivals to me, despite it pushing back its carbon reduction targets.

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

433 shares in this FTSE 100 dividend superstar could make me £18,803 in annual passive income!

This overlooked FTSE 100 gem has one of the best yields in the index, looks undervalued, and makes me big…

Read more »

Investing Articles

2 under-the-radar investment trusts I’d buy for a new Stocks and Shares ISA

Here are two fantastic trusts that I'd happily snap up today if I were building a Stocks and Shares ISA…

Read more »