Why I’m keen to buy the dip after the Aviva share price fell in April

Jon Smith explains why investors shouldn’t be spooked by the fall in the Aviva share price last month and explains why he’s optimistic.

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Image source: Aviva plc

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Last month (April) the Aviva (LSE:AV) share price fell by 6%. Even though the stock is still up 11% over the past year, it highlights a potential dip that could be a smart buy for my portfolio. I decided to dig a bit deeper, and here’s what I found.

Reasons for the fall

One reason why the stock fell in April was because it went ex-dividend. Before this date, anyone buying the stock was eligible to receive the next dividend. Yet after it, they aren’t. So logically, the share price falls by roughly the same amount as the dividend that’s due to be paid, after the ex-dividend date.

Aviva has a dividend yield of 7.14%, making it one of the highest in the FTSE 100. Therefore, it doesn’t surprise me that the ex-dividend move caused a reaction.

However, it’s important to note that this isn’t anything out of the ordinary. It happens with almost all stocks at this period of time and isn’t specifically related to Aviva.

Another reason for the dip in April can be associated with the shift in market expectations that interest rates could stay higher for longer. This could cause investors to stick to cash rather than make use of Aviva’s investment services.

Plenty of positives

Yet I think that this is just a dip for Aviva shares. The ex-dividend move is nothing to be concerned about. As for the concern around interest rates, this is valid. However, I believe that ultimately rates will fall over the next year, especially based on the fragile state of the UK economy.

The stock is appealing to me following the beat in expectations from the release of the 2023 results. The accompanying report focused on big headlines including the fact that Aviva is growing, more efficient and more profitable. This was all backed up by the numbers, such as £8.3bn of wealth net inflows and a 9% jump in operating profit versus the previous year.

I like the fact that the company is well-diversified. It has operations in the UK but also in Canada. This means that it isn’t too exposed to what happens this side of the pond. It also has a range of services to offer, from insurance through to investment products. Again this helps to spread the risk around instead of being overly concentrated on just one offering.

Drawing a conclusion

The pullback in the share price provides an attractive opportunity for an investor like myself to buy. I’m seriously thinking about adding it to my portfolio. Not only do I believe that higher profitability should help to raise the stock value in coming years, but the 7%+ dividend yield makes it a great addition for income too.

In my view, the old adage of selling in May and going away doesn’t apply here!

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.

Jon Smith 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.

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