Forecasters are bullish about the Aviva (LSE: AV.) share price right now, with none of the 13 I can see rating the stock a Sell. There’s a clear Buy consensus. But here’s a curious thing… the average share price target of 672p is about where the shares are right now.
It looks like that’s a timing issue more than anything. Most are a bit behind the share price rise of the past couple of months. And the more recent ones are towards the higher end of the range.
Citigroup, for example, put a 687p target on the stock in August. And prior to that, JP Morgan‘s 735p target is from July. As far as I can see, the low-end target of 543p dates from as long ago as 2022. Average targets tend to be weighted towards the past.
Dividends are key
In my view, the Aviva share price future is closely tied to dividends. Analysts predict 5.5% for the current year. But those share price gains mean it isn’t near the top-end of FTSE 100 yields the way it has been in the past.
Forecasts suggest decent rises over the next few years however. If they’re right, we could see the dividend grow 25% between 2024 and 2028. And to keep the price-to-earnings (P/E) valuation constant — currently forecast at 13.2 — we’d need to see the share price reach around 840p by then.
That’s well ahead of the top-end target of 740p. Such targets are relatively short term, but this suggests to me they’re probably in line with long-term earnings and dividend expectations.
Interim boost
We had an insight into how well the current year’s going with August’s first-half results. The company lifted its interim dividend 10% from the same period last year to 13.1p per share. The same rise in the final dividend could see shareholders pocketing 39.3p per share — and that’s already ahead of the consensus forecast for 38.5p.
At the time, CEO Amanda Blanc said: “We are the number one UK wealth player, with more than £200 billion of assets, and net flows are up 16%.” After the acquisition of Direct Line, Aviva now serves 21 million customers in one way or other — around 40% of the UK’s adult population.
It all paints a picture of an impressive transformation from the days when Aviva looked a bit bloated and unfocused. And it suggests to me there’s no shortage of cash to keep the dividends rising.
What’s the risk?
My main fear concerns the stock valuation. From being shunned by investors a few years ago, Aviva has become one of the UK’s most popular income stocks — according to investing firm AJ Bell. We’re now looking at a trailing price-to-earnings (P/E) ratio of 20, with a forward multiple over 13.
For a stock in the notoriously twitchy and volatile insurance sector, it might be a bit high. And a correction wouldn’t surprise me too much — though I hope it would be modest.
Still, I’m not considering selling. In fact, I’m more likely to buy more to aim to boost my long-term income prospects.
