The Aviva (LSE: AV) share price has thrown quite a party lately. It’s up 98% over five years and 25% over the past 12 months. With the stock yielding as much as 7% at times, investors have had an awfully jolly time. So how long can the fun last?
That’s a question I often ask myself when a FTSE 100 stock’s riding high. And there’s an extra edge to it when I’ve missed out on the action, as I have here.
I backed blue-chip rival Legal & General Group (LSE:LGEN), reckoning it looked more battered and offered superior recovery potential. That hasn’t worked out so far. Legal & General shares are up just 3.5% over five years, although they’ve shown more life lately, rising 12% in the last 12 months.
Dividends softened the blow. The stock yielded as much as 10% at times and still offers around 8% today. Even so, Legal & General can’t hold a candle to Aviva. Clearly, I picked the wrong party.
A tale of two FTSE 100 stocks
That said, there are growing signs Aviva’s rally may have peaked. I’ve been sceptical for months as the price-to-earnings ratio climbed to a rather toppy-looking 27. The shares have had a shaky three months, falling almost 5%. The wobble began on 13 November, when markets reacted badly to looked like a solid set of results. Aviva said it was on track to exceed its 2026 target of £2bn in annual operating profit one year early, delivering £2.2bn in 2025.
It was comfortably on course to meet its Solvency II, cumulative cash and cost-reduction targets too. Yet investors still recoiled. My best guess is that given the high valuation, markets were hoping for even more. Perhaps they sensed the punchbowl was running dry as new business premiums in the retirement division fell, and slipped out early. Such ingratitude.
So what’s the outlook now? Consensus forecasts point to a 12-month target price of just over 697p, about 8% above today’s 645p. Add in the forecast yield of 6.4% and total expected returns rise to roughly 14.4%. That would turn £10k into £11,440, assuming those forecasts come true.
Big dividends, small growth
Legal & General has outpaced Aviva over the past three months, climbing 10% against its rival’s 5% drop. Yet broker forecasts are downbeat, pointing to a 1% dip over the next year, to around 265p. The generous forward yield of 8.32% would cushion that fall, but total returns still lag Aviva. On those numbers, £10,000 would grow to about £10,732.
Of course, these are only forecasts. At best, educated guesses. But they appear to scupper my hopes that Legal & General is about to gain ground on Aviva. Worse still, it’s actually the more expensive stock, with a forward price-to-earnings ratio of 15.6, compared with 13.8 for Aviva.
Aviva has clearly found its feet under Amanda Blanc, who has sharpened and streamlined the business in a way Legal & General has yet to match. It may suit momentum investors, while Legal & General feels more like a contrarian play. Both are worth considering, but for now, I suspect the force is still with Aviva.
