I didn’t buy any Aviva (LSE: AV.) shares a year ago, but I did pick some up back in November. From both points in time, they’ve performed well.
But how well exactly? What if I’d bought five grand’s worth of this FTSE 100 insurance stock a year ago?
A strong performer
One year ago, the Aviva share price was 419p. Today (10 April), it opened at 491p, which is a 17% increase.
That’s a far better 12-month return than the 1.9% return of the FTSE 100 (discounting dividends, which the Footsie does generously churn out).
Specifically, it means my hypothetical £5,000 would now be worth about £5,850 on paper. Not bad from an established, steady-Eddy Footsie dividend stock.
On top of this, I’d have bagged another £132 in dividends, bringing my total return to just under £6,000. And I’d be due another £266 dividend payment on 23 May.
Strangely enough, the shares were also 419p each when I bought them in November. I invested for two main reasons.
Turnaround potential
First, I thought there might be a decent turnaround in the share price over the next couple of years. Not on the scale of Rolls-Royce, of course, but I thought the stock had/has a very decent chance of pushing on to 500p and beyond.
What gives me this impression, given the stock’s underwhelming long-term performance?
Well, recent earnings reports have highlighted strong organic growth in Aviva’s capital-light businesses. These generally require lower upfront investment and have the potential for better profit margins over the long run.
Moreover, the insurer recently completed the £453m acquisition of AIG Life Limited’s UK protection business. Chief executive Amanda Blanc said this deal “strengthens our prospects in the highly attractive UK protection market and continues our progress in repositioning the group towards capital-light growth”.
Now, there are risks to Aviva’s strategy of doubling down on mature markets like the UK and Ireland. The main one is growth. Where will it come from long term?
This isn’t a concern now while financial performance is being improved by cost-cutting and the streamlining of operations. But longer term it might be. We’ll have to wait and see.
Passive income
My second reason for investing is because of the generous dividends on offer.
| Financial year | Dividend per share | Dividend yield | |
| 2025 (forecast) | 38.0p | 7.7% | |
| 2024 (forecast) | 34.7p | 7.0% | |
| 2023 | 33.4p | 6.7% |
The 7% forward yield is well above the FTSE 100’s 3.9% average, and it also beats any best buy savings accounts I’m been offered right now.
On paper, dividend cover looks a little thin at 1.3 times earnings, and no payout is set in stone.
However, when Aviva recently laid out a target for £2bn in operating profit by 2026, it said: “The upgraded targets set out today support our sustainable dividend policy. We now expect the cash cost of the dividend to grow by mid-single digits, demonstrating our confidence and ambition for Aviva.”
It further demonstrated this confidence with a new £300m share buyback programme.
All this looks positive to me. I may even pick up some more shares in the weeks ahead.
