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Why Aviva plc Is A Better Investment Than Bricks and Mortar

Aviva

Everybody is obsessing about UK house prices, and that’s hardly surprising, with prices soaring 10.4% in the last year and 19.3% in London, according to the Office for National Statistics (ONS). But many people are also suspicious, because they don’t believe this breakneck growth is either healthy, or sustainable.

Property hasn’t been the only roaring investment of the last five years, stock markets have also delivered plentiful growth. Shares also have major advantages over property, as you can invest with just a few hundred pounds, rather than hundreds of thousands, and sell up in a matter of seconds, rather than months.

Top name FTSE 100 stocks such as insurer Aviva (LSE: AV) (NYSE: AV.US) can easily give the property market a run for its money.

Aviva Revived

Some people wrongly think that property is a one-way bet. Nobody would make the same mistake about Aviva.

This is a company in recovery mode. Two years ago, it suffered a 10% drop in profits, following a costly £876 million write-down on its US business, expensive UK weather-related insurance claims, and adverse foreign exchange movements. Shortly after, the only thing shareholders did like about Aviva, its 8% yield, was slashed by roughly half.

Over the last five years, Aviva has posted fairly modest share price growth of just 30%. It trails the FTSE 100, which grew a steady 41% over the same period.

Crucially, as far as this article is concerned, it also trailed the UK housing market. Over five years, the average UK property has climbed from £194,000 to £262,000, according to ONS figures, a rise of 34%.

That’s 4% more than Aviva. Or is it?

Reaping Dividends

The balance shifts firmly in favour of Aviva once you include its dividends. This stock has delivered an average payout of around 5% a year over the period, or 28% over five years, if reinvested for income.

Add that to the share price growth and you get a total return of 57%, easily beating house prices.

Still Climbing

Over the last couple of years, Aviva has done even better. It is up 60% over two years, and 32% over one year, against growth of 12% and 10.3% respectively for the average UK property.

And that’s before you factor in its dividends.

It’s natural that we all focus so obsessively on house prices, given that our home is our most valuable asset, and housing costs have such a disproportionate impact on everyday life, as well as the wider economy.

But that shouldn’t blind you to the fact that solid FTSE 100 companies such as Aviva can give you a better return, a regular income, and far greater flexibility.

Plus you don’t have to borrow hundreds of thousands of pounds to buy them.

Get On The Stock Market Ladder

Of course, every stock behaves differently. Aviva has been helped by the fact it was an undervalued turnaround company, that has managed to put its house in order in the last couple of years.

Today, it trades at a forecast valuation of 11.1 times earnings for December 2014, which suggests it still has further scope for growth. With forecast earnings per share growth of a whopping 114% this year, the future looks promising.

If you feel you’re missing out on the property boom, don’t panic, there are easier ways to invest in the next leg of the UK recovery.

We think there are plenty of Better Bargains Than Property Right Now. Our new special report, The Motley Fool's Three Shares To Beat Property, picks out three companies we believe will outperform house prices in the longer run. It won't cost you a penny, so Click Here Now.

Harvey Jones holds shares in Aviva. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.