Aviva (LSE: AV.) shares are a very popular investment at the moment. On Hargreaves Lansdown’s platform, they were among the top 10 Stocks and Shares ISA investments in the first 10 days of the 2024/2025 tax year.
With their high dividend yield, I can see why investors are drawn to the shares. As a long-term investor looking for high total returns (capital gains plus dividends) could I do better though? Let’s discuss.
Attractive, at first glance
At first glance, Aviva shares do have a lot going for them. For a start, they trade at a substantial discount to the market. Currently, Aviva has a forward-looking price-to-earnings (P/E) ratio of just 10.7 versus 13.8 for the FTSE 100. So they appear to offer value.
Secondly, the company’s been performing well recently. Last year, group operating profit was up a healthy 9% year on year to £1,467m. “Our prospects have never been better”, commented CEO Amanda Blanc in the company’s full-year results.
Third, there’s the big dividend, which I mentioned earlier. For 2023, the group declared a total payout of 33.4p per share, which translates to a yield of about 7.1% today.
An odd stock
The thing is though, Aviva is a bit of an odd stock. In the past, it’s often looked cheap. But this hasn’t really translated into returns for investors. Believe it or not, over the last 10 years, its share price has actually gone backwards (by about 10%).
That’s disappointing, especially when you consider that a lot of UK stocks have doubled or tripled in price over that time period.
Just look at accounting software company Sage (which I own shares in). Its share price has gone from 400p to 1,165p in that time. And the company’s also paid nice dividends.
Of course, Aviva’s big dividends have offset the lack of share price gains to a degree. But these have been a little inconsistent.
I learnt this the hard way as I owned the shares in 2020 when the company slashed its dividend payout. Not only did I face less dividend income as a result of the cut but I was also hit with nasty share price losses.
At the time, I came to the conclusion that one of Aviva’s problems was a lack of edge. It operates in a really competitive industry (that can be turbulent at times) and doesn’t really have a genuine competitive advantage or ‘economic moat’ as billionaire investor Warren Buffett likes to say.
That’s not ideal from an investment perspective.
My view on Aviva
Now, I don’t want to sound too bearish on Aviva. It’s a solid company that’s performing quite well at the moment. And the dividend yield is currently attractive. So it could be a good stock for income seekers.
However, personally, the shares don’t strike me as a ‘must-own’ investment. I think there are other stocks on the London Stock Exchange that are capable of providing higher total returns in the years ahead.
