Growth and income machine Aviva plc is a terrific core portfolio holding

Harvey Jones says that Aviva plc (LON: AV) has delivered, but wonders where can it go next.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Insurance giant Aviva (LSE: AV) has found its feet after a number of unsteady years, and today’s rock solid results consolidate the trend.

Viva Aviva!

Aviva is back. Or as group chief executive officer Mark Wilson pithily puts it: “Aviva is delivering.” Today’s first-half results show the company raising operating profit for the fourth year in a row, this time by a meaty 11% to £1.47bn, which reflects positive performances across its worldwide businesses.

The company is beneftiting from geographic diversification, increasing sales right across the group including the UK, Europe and Aviva Investors. Wilson hailed top line sales and bottom line profit in UK general insurance, pensions, annuities and protection: “Our digital business continues to make progress, making insurance simpler and more convenient for customers.” 

Today’s report also showed operating earnings per share up 15%, IFRS profit after tax soaring from £201m to £716m year-on-year, and a 27% rise in the value of new business to £596m. Aviva looks financially solid, maintaining its financial strength with Solvency II coverage ratio of 193%, up from 189%, with a capital surplus £11.4bn, up from £11.3bn. Group assets under management now total £475bn, up from £450bn.

Investor rewards

This continues Aviva’s strong recovery, which has seen the company’s share price rise nearly 40% over the past 12 months. Investors who stuck by the stock after it halved its dividend in August 2013 to finance its turnaround strategy have been rewarded for their loyalty, as short-term pain turns into long-term gain.

Today, Aviva announced that it was increasing the interim dividend per share by 13% to 8.4p. The stock now yields 4.31%, and as we have seen today, it has plenty of scope for progression. Wilson announced a £300m share buy-back in May and by the end of July had implemented over one third of the programme. It should be completed by the end of 2017, further rewarding investors.

Turn on, tune in, turnaround

With these results, I get the feeling that we have reached the end of a process. The crisis has passed, the turnaround is largely complete, which is of course good news. However, investors will be asking what happens now. Today’s results were welcome but they were also priced-in and the share price barely moved. Investors cannot expect the shares to jump another 40% over the next 12 months, unless Wilson can deliver something fresh.

He has done the right thing by getting back to basics, simplifying the company’s structure, delivering healthy organic growth and building its digital operation. Will it now be steady as she goes, with Wilson delivering further fireworks-free growth and further rewarding shareholders with dividend progression and share buybacks? Or will he choose to be a little more ambitious?

Life decisions

Aviva generated £1.2bn of capital in the first half of 2016, and has followed this up with another £1.1bn this year. That gives it plenty of ammunition if Wilson wants to go on an acquisition spree instead, or pioneer new markets. This would be a riskier strategy but might also drive profits and dividends in the longer run. He has certainly earned the right to try. Whether you are after income or growth, Aviva should deliver on both fronts.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones owns shares of Aviva. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »