August has been a good month for FTSE 100 insurer Aviva (LSE: AV). The Aviva share price hit a level last seen in 2008, when the financial crisis was taking hold.
It has been a long road! Still, incredibly, the Aviva share price is barely half what it was in the late 1990s.
Even as a long-term investor, I despair at the thought of putting money into a share and still nursing a large paper loss over a quarter of a century later. Yes, Aviva’s dividend yield of 5.7% is attractive, but share price movements matter too.
Still, as the recent price action shows, Aviva seems to have the wind in its sails now. It has moved up 29% over the past year alone. Could it make sense for investors to consider the share now?
Comparisons can be helpful, but also unhelpful!
First, a word about the price having now come full circle since 2008.
Does that suggest anything about the state of the overall financial market right now, such as that we may be in a similar situation to 2008?
There are some similarities, but there are also a lot of differences. That is true for the market overall and it is certainly the case for Aviva, specifically.
It has really streamlined its business in recent years, selling off multiple operations and having a far clearer strategic focus on its core UK market, as well as several other places.
Aviva is performing strongly
That has only been part of the strategic medicine doled out under current management.
Aviva’s takeover of UK rival Direct Line has added to its already massive UK operation. That should offer economies of scale, but it increases the concentration risk: if the UK general insurance market enters into a period of strong price competition, for example, Aviva will surely be affected.
I also think it is worth waiting to see how the Direct Line acquisition ultimately pans out. The company had a disappointing couple of years before it was taken over.
It remains to be seen whether better management can fix its problems or if too much damage had already been done, for example, when it comes to Direct Line’s reputation with customers.
Despite such concerns, there is no denying that Aviva has been doing very well in recent years. In the first half of this year, compared to the prior year’s equivalent period, the interim dividend grew 10%, underpinned by operating profit up by more than a fifth and what is known as Solvency II own funds generation up by 20%.
One to consider
That means Aviva is throwing off large amounts of surplus cash. That has helped it grow its dividend handsomely in recent years following a cut in 2020.
I see a lot to like here and reckon Aviva is a share worth considering, even after its recent price growth.
