Here’s why I’d sell Aviva plc

As an Aviva (LSE: AV) shareholder, I was pleased by Thursday’s full-year results and by the market’s reaction to them.

Feeling more confident

Aviva famously overstretched itself during the financial crisis, and was forced to slash its dividend as part of a major attempt to return its balance sheet and liquidity to glowing health. I think it’s been doing the job extremely well in such a short time, but sentiment is understandably slow to swing back behind an uncertain recovery.

That looks to be changing now, after Aviva posted a 12% rise in operating profit and a 3% rise in operating EPS, and significantly improved its liquidity measures. There was still a bottom-line fall in reported profit, but the nadir is surely now passed.

What’s key for me is the dividend hike of 12%, coupled with a reinforcement of the firm’s eventual target of a 50% payout ratio, and a plan for “additional capital returns […] during 2017“. I had been wondering if the rapid ramping-up of the dividend might perhaps be a little hasty, especially in the light of the Brexit result, but I’m feeling more confident now — as, apparently, are investors, who have pushed the share price up 6.5%, to 544p.

The whole thing moved my colleague, Roland Head, to tell us how he has no plans to sell Aviva (and would even consider topping up some more). And hanging on to great shares for the long term really is the best way to financial comfort.

Would I sell?

But I can see two very good reasons why I might sell my Aviva shares in the future.

The first one is a good reason to sell any share, and that’s because I might need the money. In fact, I firmly intend to sell down my shares to help fund a comfortable lifestyle for my family at some stage — I just don’t see wealth as an end in itself.

Those occasional old folk who live lives of penury and die with millions untouched in shares? Some might hold those up as great examples of successful investors — but if you believe that, then I think you’ve missed the point of life.

The other main reason I’d sell comes straight from Warren Buffett. He’s said you should only buy shares you want to hold for at least 10 years, and that’s certainly the way I feel about Aviva. Many interpret that to mean you should buy and hold no matter what, through thick and thin, in sickness and in health…

But that’s nonsense. Part of the great man’s strategy is to periodically re-evaluate the reasons for buying a stock, and if those reasons change then you should change your mind about it — he dumped Tesco pretty quickly when he saw things turning out far less rosily than he’d expected.

What I bought

I bought the new Aviva that’s a conservatively managed company, focused on dependable liquidity, and which places a high priority on long-term sustainable cash generation — I didn’t buy the old Aviva that got itself into financial trouble.

And if I see any sign of the bad old version of the company returning, that’s when I’ll seriously consider selling. I’m not after the biggest profit I can get this year — I’m looking for progressive and sustainable long-term rewards with no hint of short-term overstretching.

Other than that, I’m never selling.

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Alan Oscroft owns shares of 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.