The Aviva (LSE: AV.) share price had a great March, gaining 10%. In fact, it was the second positive month in a row, and the stock’s up 23% in the past 12 months.
So is Aviva’s ambitious turnaround plan bearing fruit? Or are we seeing a welcome change in sentiment for the insurance sector?
I think a bit of both.
Upbeat results
It looks like Aviva had a boost from strong FY results from Phoenix Group Holdings. Crucially, Phoenix affirmed a progressive dividend policy. And that made its forecast 10% dividend yield suddenly start to look more solid.
At Aviva, we’re looking at forecast yields of around 7%. I’d say confidence in the dividend maybe hasn’t been too strong so far in 2024.
But the Phoenix result will have helped, on top of Aviva’s own 2023 results posted on 7 March. Aviva announced a £300m share buyback and upgraded its dividend guidance to “mid-single digit cash cost growth“.
So right now, the cash situation and the dividend look fine to me.
Outlook
Aviva has upped its targets for the next few years. The board aims for operating profit of £2bn by 2026, 36% ahead of 2023’s £1,467m figure.
The firm’s Solvency II own funds generation measure is now on for £1.8bn by 2026, a bit ahead of the £1,729m just posted.
Aviva also hopes for cumulative cash remittances to beat £5.8bn over the 2024-2026 period.
Forecasts
But what do forecasts say? Here’s a look at how City folk think things might go, compared to 2023 results:
| Year | Earnings per share | P/E ratio | Dividend | Dividend yield |
| 2023 | 37.7p | 13.2 | 33.4p | 6.7% |
| 2024 (f) | 42.1p | 11.8 | 36.0p | 7.2% |
| 2025 (f) | 47.8p | 10.4 | 38.4p | 7.7% |
| 2026 (f) | 51.0p | 9.7 | 41.9p | 8.4% |
The price-to-earnings (P/E) ratios and dividend yields in the table above are based on the share price at market close on 28 March.
I think that looks pretty good. And I reckon its the kind of dividend performance that could help generate some tasty passive income for decades to come. It must surely have helped Aviva’s March share price gains.
The main trouble I see though is that this is a cyclical business. And the long-term future can be less visible than for others.
Recession
In the shorter term, we’ve had it confirmed that the UK was in recession in 2023. And with interest rates still high, the outlook for the next 12 months is still very hazy.
That could keep market sentiment wary of any financial stocks for a while yet. I know Aviva has had a good month, and it’s been backed up by Phoenix Group.
But memories can be short. And I fully expect to see some months ahead when the whole sector falls back.
Long-term outlook
On the whole though, I’ve liked insurance shares for some time. And I expect them to do well in the long term. It does need me to think beyond these predictions for the next few years though.
