Aviva (LSE: AV) shares have done well in recent years, and it’s killing me. I want to buy them but I can’t!
The FTSE 100 insurer and asset manager has delivered capital growth and dividend income, rewarding long-term investors who had the patience to sit tight when the stock was stuck in the slow lane.
With high-yielding UK dividend shares like this, a few years of disappointing performance isn’t the end of the world. As long as the board can afford to maintain shareholder payouts, and investors steadily reinvest those dividends, wealth quietly builds in the background. That bigger stake pays off handsomely when the share price finally starts to move.
Can this stock keep climbing?
And move it has. Over five years, the Aviva share price has climbed almost 150%, although that’s flattered by the post-pandemic lows of 2020. It’s up 18% over the last year, and held reasonably steady during this year’s stock market volatility.
There’s a growing case for saying that FTSE 100 dividend income stocks are coming back into fashion. With interest rate cuts increasingly likely as central banks try to cushion the slowdown from Trump’s tariff war, the relative appeal of dependable dividends could rise.
Stocks like Aviva, which are less exposed to direct trade barriers, could benefit, although market volatility could still knock the value of assets they hold.
Aviva’s full-year results, published on 27 February, showed operating profit climbed 20% to £1.77bn, while assets under management grew by 17% to £198bn. However, that was before Trump shocked the world with his tariff strategy. Any damage done will be better reflected in the next set of numbers.
In February, the board hiked the dividend a healthy 7% to 35.7p per share, in a sign of confidence. Dividends are never guaranteed, although brokers forecast the yield will hit 6.97% this year and 7.49% in 2026. That’s a staggering rate of income.
Markets are also optimistic about Aviva’s acquisition of general insurer Direct Line.
The 12 analysts who have published one-year targets for Aviva see a median figure of 595.4p. If that’s right, it would represent a gain of almost 9% from today’s 547p.
Dividend income and growth
Throw in the dividend yield, and the potential total return climbs north of 15%. Not bad, if it plays out. However, forecasts are merely best guesses, and given today’s uncertainty, less reliable than ever.
Even strong businesses carry risks. Aviva’s fortunes are closely tied to economic conditions. An economic slowdown could hit demand for insurance and savings products, while investment returns might suffer. Competition remains fierce too. Maintaining margins and market share won’t be easy.
Aviva’s forward price-to-earnings ratio, at just over 22, is high but hardly outrageous given the company’s performance and prospects.
So why can’t I buy it? Sadly, I’ve made a rookie mistake. I already hold sizeable stakes in Legal & General Group, M&G and Phoenix Group Holdings. So I’m heavily exposed to FTSE 100 financials already. They’ve all done reasonably well and I’m in no hurry to sell.
If I was starting from scratch, I’d buy Aviva first. It’s the most convincing performer. As I’m not, I’ll stick to my guns and hope Legal & General, M&G and Phoenix play catch up. They’ve got a fair way to go.
