The share price chart for Aviva (LSE: AV) increasingly looks like a thing of beauty. Up 29% so far this year – and 146% over five years – the Aviva share price today (30 July) hit a level last seen back in 2008.
That may make it seem expensive. But could this still be a share for investors to consider even now?
Strong growth trajectory
I think the answer to that question is yes.
Insurance is often a staid, fairly plodding sort of business. So a FTSE 100 share comfortably more than doubling in five years may seem surprising.
But Aviva has undergone a transformation during that period. By selling some overseas businesses and acquiring rival Direct Line, it has increased its strategic focus on its core UK market. It is the biggest player in the market. Globally, Aviva has over 20m customers.
I think the company’s strong performance in recent years – reflected in the surging Aviva share price – is largely down to some successful strategic choices and the current management’s consistent execution.
That could continue to deliver strong results that may push the share price up further. The first quarter of this year saw general insurance premiums grow 9% compared to the prior year period.
Meanwhile, the dividend per share has been growing handily since a 2020 cut. So, despite the strong share price performance, Aviva offers a juicy dividend yield of 5.6%.
Promising outlook, but not risk-free
Still, while I see lots of things to like about the Aviva investment case, the insurer faces risks, like any business.
Being a market leader can bring economies of scale, but it also typically brings a risk that smaller rivals will try to take market share by competing on price. Offering market-beating premium prices can be more affordable for a firm with fewer customers than one that has over 20m.
Integrating Direct Line may also be a challenge. The business had struggled in the years before Aviva acquired it. Whether that was down to poor management or more underlying problems that persist after the ownership change remains to be seen.
I am also concerned that absorbing Direct Line could take up executive time that may lead to less focus on the rest of the business.
More potential left
On balance, though, I continue to see Aviva as a well-run, strong business with ongoing growth potential. It benefits from a large, resilient market and has strong brands, deep underwriting experience, and a proven business model.
Dividends are never guaranteed – as the cut five years ago demonstrated. But if the business continues to perform well, I reckon Aviva may grow its dividend per share in years to come.
That means that the prospective yield could be even higher than the 5.6% current yield I mentioned above.
