The Motley Fool

How low can the Aviva share price go?

Image source: Getty Images.

Does the falling share price of Aviva (LSE: AV) indicate deeper problems that are not yet public?

Despite rising profits, double-digit dividend growth and a strengthened balance sheet, shares in the FTSE 100 insurer have fallen by 5% over the last year, lagging the wider market. As a shareholder myself, I’m not sure why the market is so cautious about this successful turnaround.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Although half-year profits were hit by severe winter weather in the UK and Canada, overall performance was still pretty solid in my view. Operating profit excluding disposals rose by 4% to £1,421m, and this figure was supported by cash generation of £1,493m.

The group used some of its spare cash to repay £500m of high-cost debt and return £600m to shareholders through a share buyback. Alongside this, the interim dividend rose by 10%.

Aviva’s regulatory ratios also remain comfortable. And its performance over the last few years suggests to me that CEO Mark Wilson’s turnaround plans have been successful. So what is wrong?

No loyalty

We all know why we need insurance. But the reality is that we don’t really like paying for something we rarely use. We tend to shop around for the cheapest insurance that offers the cover we need, and we don’t hesitate to switch insurers when we renew.

Insurance bosses like Mr Wilson aren’t happy about being seen as a necessary evil. They want to customers to stay loyal and purchase multiple services from them. The prize at stake is higher profit margins and an expanded share of mature markets such as the UK.

Achieving this change may not be easy. Efforts so far include a web portal where you can manage all Aviva services, an app to help make you a safer driver, and leak detection kits for home insurance customers.

Will this work? It’s too soon to say. But I suspect it could. In the meantime, I believe that Aviva shares are probably getting close to the bottom of their trading range. Broker forecasts put the stock on a price/earnings ratio of 8.6 with a 6.1% yield for 2018. I maintain my dividend buy rating on this stock.

Just show me the cash

My second pick today is also an insurance firm. But it’s very different. Chesnara (LSE: CSN) buys up closed books of life insurance policies from other insurers and runs them through to maturity.

What this means is that the group doesn’t have to worry about customer acquisition, marketing or developing new services. The key to its success is skilled management of its policies and low costs.

Chesnara has been very successful. Its share price has tripled over the last 10 years, while dividends have risen every year since the group’s flotation in 2004. This gives me a good level of confidence in the company’s management and strategy.

Today’s half-year results suggest to me that this progress is likely to continue. Although the group’s economic value — a valuation measure used by insurers — fell by 3% to £700.8m, this was mostly due to currency headwinds. Cash generation remained strong at £48.6m, providing support for a 3% increase to the interim dividend.

Looking ahead, analysts expect Chesnara to pay a full-year dividend of 20.7p per share, giving the stock a 5.3% yield. In my view these shares are worth considering for a long-term income.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Roland Head 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.