September has certainly been a good month for Aviva (LSE: AV). The FTSE 100 insurer has seen its share price hit the highest level since 2007. That might make it sound as if Aviva shares have become expensive. But one person who does not seem to think so is the company’s chief executive. She has spent tens of thousands of pounds of her own money this month adding to her shareholding in the firm.
So, despite having been on such a great run of late, could it still make sense for investors to consider Aviva shares?
I think it does.
A strong passive income prospect
Back in 2020, Aviva took an axe to its dividend and cut the payout per share by around one third.
For a mature company in a somewhat sleepy industry, that was unwelcome news for many shareholders who had been attracted by the share’s passive income potential.
What has been more welcome is the steady flow of annual increases in the dividend per share since then. The company aims to keep them coming, although dividends are never guaranteed to last at any business.
Thanks to those regular increases, the Aviva dividend yield remains more than competitive. Even though Aviva shares have grown 141% in five years, they currently yield 5.4%.
Strong business with long-term growth prospects
That is well above the FTSE 100 average of 3.3%.
However, it is not outstanding: other FTSE 100 financial insurers also offer high yields, including insurer Phoenix Group. It yields 8.6%.
Still, each share needs to be considered on its individual merits. On that basis, I see Aviva as a share worth considering.
The market for insurance is large and likely to stay that way. It is easy to focus on the downward pressure competition can place on profit margins. But as recent years have shown, British insurers have substantial scope to raise premiums without necessarily losing lots of business.
Aviva has been in growth mode in its core UK market, with the acquisition of Direct Line offering it the chance to expand its market share and add economies of scale.
Strategic focus has been delivering
On top of that, in recent years, the company has slimmed down its once-sprawling overseas operations to focus more sharply on selected international markets.
That has been working well as a strategy, although it increases the concentration risk Aviva faces. Its increased reliance on the UK market means that any problems there – such as a price war – could be problematic for market leader Aviva.
There are other risks, too. Direct Line had a period of underperformance before it was acquired. Sorting the business out could take a lot of management time at Aviva. So far, though, the company has been positive about the progress of the Direct Line integration.
On balance, Aviva looks to me like a well-run and highly cash generative business. Even at the recent price, I think it makes sense for investors to consider Aviva shares.
