THE Aviva (LSE: AV.) share price has been racing ahead. It’s up almost 30% over the last year and 130% across five years. That’s a stunning return for a FTSE 100 insurer that once looked unloved and undervalued.
Yet even after this run, it still offers an attractive dividend. The trailing yield sits at 5.85%, supported by rising profits and growing confidence at board level. Full-year results published on 27 February showed operating profit climbed 20% to £1.77bn. The board responded by hiking the 2024 dividend 6.89% to 35.7p per share. It’s easy to see why investors love it.
Big strides forward
First-quarter results released on 15 May showed the group’s momentum had spilled into 2025. Premiums rose 9% to £2.9bn, while wealth net flows hit £2.3bn and retirement sales rose 4% to £1.8bn. Protection and health insurance jumped 19%. That’s a strong performance across the board.
CEO Amanda Blanc said she was “very positive” about the year ahead, and I can see why. The Solvency II ratio remains high at 203%, underlining the group’s financial firepower.
The acquisition of Direct Line has now got the green light. Aviva expects the deal to boost earnings per share by around 10% and accelerate the insurer’s move into capital-light operations, which are less exposed to volatility and need less regulatory capital. Aviva’s commitment to returning cash to shareholders is already clear. Over the last four-and-a-half years, it has divvied out £10bn.
Strong forecasts
After such a strong spell, it’s natural to wonder whether the shares are due a pause. The 10 analysts who follow the stock think the share price could edge up to 630p over the next 12 months. That’s only around 3.3% above today’s 610p.
However, the dividend is expected to rise again, with analysts forecasting a payout of 37.87p. That implies a forward yield of 6.2%. If both predictions prove accurate, a £10,000 investment could return almost 10% over the next year. That would take the pot to just under £11k.
Of course, these are forecasts, not guarantees. No stock climbs in a straight line. There will be dull years and disappointing ones. But with a company like this, the real reward comes from taking a long-term view. Reinvested dividends can make a huge difference. If the share price does pause or fall, new shares will come cheaper, boosting future growth.
Higher value
A couple of years ago, I took the plunge into FTSE 100 financials when they were trading at knock-down valuations. A lot of that value has now been realised. Aviva’s price-to-earnings ratio is now up to around 25, which is no longer cheap.
There are risks too. Claims inflation could eat into margins if repair costs or medical bills spike. Catastrophic weather events remain a constant threat in general insurance, as Aviva has seen in Canada. And with the UK economy slowing, retirement and wealth inflows may retreat.
Despite its success, I still think the stock is worth considering today. The dividend income should keep flowing, and those reinvested payouts should deliver compounding benefits over time. But the recent surge may have run its course.
