I’ve had my eye on Aviva (LSE: AV) shares for a while. I think there’s plenty to admire about the stock.
It’s had a strong start to the year. As I write, it’s up by 8.2% in 2024. During that time, the FTSE 100 is up just 0.2%.
I’m contemplating adding the insurance stalwart to my portfolio. Here’s why.
Gaining traction
Its share price has been gaining momentum recently. There are a few reasons for this.
First, it posted a better-than-expected set of results for 2023. As Aviva simply put it: “Sales are up, costs are down.” That’s what I like to see. As a result, operating profit for the year jumped 9% to just shy of £1.5bn.
In the last few years, the firm has placed a large emphasis on cutting costs and streamlining its operations. Safe to say, last year it looked like it paid off as it delivered its £750m cost reduction target a year early.
What’s also driven its price higher was the recent news that it will enter the Lloyd’s market via its acquisition of Probitas for £242m. This is the first time the firm has been in the historic Lloyd’s insurance market since 2000.
The move “opens up new opportunities to accelerate growth” in Aviva’s capital-light General Insurance business, according to CEO Amanda Blanc.
Rewarding shareholders
Another reason I’m a fan is because of its 7.2% yield. That tops the FTSE 100 average by some margin. I like to target stocks that offer a yield of 7%+ when hunting for income shares, so it covers that basis. But what’s even better is that it has been rising in recent times.
For 2023, Aviva increased its dividend by 8% to 33.4p a share, up from 31p in 2022. In tandem with that, it also announced a new £300m share buyback programme.
That takes the total returned to shareholders via capital returns and dividends to over £9bn in the last three years. Impressive.
The risks
While Aviva has streamlined in recent times, this comes with risk. It now concentrates on just a few markets. Should these suffer, this could spell trouble for the business moving forward. For example, the UK economy isn’t expected to grow much this year. On top of that, any regulatory pressures in the regions it operates in will also be an issue.
What’s more, Aviva operates in a competitive market. While its recent acquisition will help it diversify its revenue, it will face stiff competition as it attempts to continue growing.
I’m still bullish
But even so, I think there are ample reasons to like it. With a price-to-earnings ratio of 12.4, its shares are fairly priced for a business of its quality, in my opinion. In the years and decades ahead, it’s also in a good place to capitalise on rising trends such as an ageing population with the retirement products it offers.
The passive income I could make is a further attraction. If I had the investable cash, I’d strongly consider adding Aviva to my portfolio.
