Here’s why this 7% yielding insurance star is one of the best income stocks around!

As income stocks go, this Fool explains why this insurance business is one of the best around to help her build an additional income stream.

| More on:
Young black colleagues high-fiving each other at work

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.

Income stocks come in all shapes and sizes. However, as dividends aren’t guaranteed, I reckon it’s crucial to be diligent when buying stocks purely for passive income.

Some characteristics I look for are a business with a strong moat, solid fundamentals, and a decent track record, as well as an attractive level of return.

I reckon Aviva (LSE: AV.) ticks all my boxes. I’m a fan, and here’s why I’d look to buy some shares as soon as I have some investable cash.

Aviva shares on the up

As one of the largest multi-line insurance firms in the UK, Aviva has defensive traits. This is linked to its most prevalent offering, car insurance, which is a legal requirement in the UK. It also offers other services too, including life insurance, and pension and annuities.

Financial services stocks have been hit hard by recent volatility. Aviva shares have rallied well recently, so there is a chance the shares may soon be too expensive for my liking, hence why I’m keen to act soon. A big reason for this is better-than-expected 2023 results.

Over a 12-month period, the shares are up 12.5% from 424p at this time last year, to current levels of 477p.

The good stuff

Aviva’s recent performance against the backdrop of volatility was very impressive. To break the results down, the business stated that costs were falling, and sales were rising. A perfect cocktail for pretty much any business if ever I saw one! It looks like the firm’s recent strategic review to cut costs through streamlining its offering, and boosts sales, seems to be working.

In addition to strong performance, Aviva is acquiring Probitas. This could represent key growth opportunities, as this acquisition will mean Aviva is in the historic and prestigious Lloyd’s insurance market for the first time in over two decades.

Moving on to fundamentals, the dividend yield looks well covered, and stands at an index-beating 7.2%. The business looks intent on rewarding shareholders, which is positive for me. It recently announced a share buyback scheme worth £300m.

Furthermore, the shares are still at a level where I’d consider them value for money. They trade on a price-to-earnings ratio of 12. I don’t think that they will stay cheap for too long though!

Risks and final thoughts

One thing I can’t help but wonder is how this new streamlined business, focusing its efforts on fewer markets and products, may fare if volatility continues? The potential blanket of protection through diversification and wider markets has been taken away.

In addition to this, the markets it does operate in are supremely competitive, which is something I’ll keep an eye on.

The final risk I’ll mention is Aviva’s appetite for acquisitions. When these work out they can help boost investor rewards. However, disposing of failed businesses can be costly and have untold damage to a balance sheet, and investor rewards.

Overall, I reckon the positives outweigh the negatives by some distance. A defensive business, coupled with a generous investor rewards policy, and excellent recent performance, make my investment case a no-brainer. I just wished I’d bought some shares sooner, before the recent rally!

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.

Sumayya Mansoor has no position in any of the shares mentioned. 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

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

Investing freedom — but inside a pension

Strapped consumers might be cutting back on investing, but they’re still keeping up their pension contributions. The only problem? A…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Forget gold! I’d rather buy these 3 FTSE high-yielders in a Stocks and Shares ISA

Gold looks like a risky investment to me as the price hits an all-time high. I'm ignoring the fuss to…

Read more »

Young female business analyst looking at a graph chart while working from home
Growth Shares

This 55p UK stock could rise more than 300%, according to a City broker

This UK stock has fallen from above 800p to below 60p. But analysts at Citi believe it’s capable of a…

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

I think this FTSE 250 trust has all the right ingredients to lock in long-term profits

Today I'm examining the prospects of a private equity investment trust on the FTSE 250 that caught my attention recently…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 under-the-radar UK shares investors should consider snapping up

Two UK shares have caught the eye of our writer. She explains why investors should be taking a closer look…

Read more »

Investing Articles

Are these 2 ultra-high-yielding income stocks a good buy for me?

These two income stocks often split the debate amongst investors. So what does our writer think of them as potential…

Read more »

Senior woman potting plant in garden at home
Investing Articles

5% yield! This dividend stock could be great for my retirement

Our writer explains why this dividend stock appeals to her as she’s investing to build wealth to enjoy in the…

Read more »

A young Asian woman holding up her index finger
Investing Articles

I’d aim for a second income of £1,000 a month with this super-reliable dividend stock

I think a great way to build a second income stream is by investing in dividend stocks via a Stocks…

Read more »