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The Aviva share price is up 20% in 2021. Should I buy some more?

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I’ve so far spent 2021 mostly ignoring the shares I already own, and that includes Aviva (LSE: AV). I’m far more interested in the stocks I don’t own but might want to buy in the coming months. Anyway, what’s been happening to the Aviva share price? Well, it looks like it’s up 23% since the start of the year. And yes, I really have only just had a look. Am I neglectful, taking my eye off my share prices? If I’m not thinking of buying or selling Aviva, why should I care?

Since mid-February 2020, before the Covid catastrophe hit, Aviva shares are down 5%. But Aviva has declared a dividend of 21p per share for 2020. Based on the Aviva share price at the start of last year, that’s a 5% yield, wiping out share price drop. I’d say its shareholders had a pretty good year.

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Looking back also reinforces for me the danger of selling out when a stock is severely hammered. Aviva collapsed a fair bit harder than the FTSE 100 in general. Those selling during the depths of the crisis suffered a loss of up to 45% at one point — a loss they would have already recovered had they held.

Aviva share price future

But I can understand the sentiment. I mean, pandemic, economic collapse, stock market crash… the whole financial sector was sure to be plunged into ruin, yes? Well, actually, no. Banking shares are still down, but the banks are coming back. Even hard-pressed Lloyds Banking Group has just released upbeat figures for the first quarter of 2021. And insurance?

Judging by Aviva’s 2020 results, released in March, it’s hard to find much impact from the crisis. Operating profit fell by less than 1% from 2019. And profit stated in IFRS terms was actually up. There was no immediate positive sentiment towards the Aviva share price as a result. But then, Aviva has been battling structural problems, which take longer to sort out. 

So what about the outlook for its transformation efforts? After the sale of Aviva France, the company revealed plans to dispose of Aviva Italy in 2021. On completion, it expects to see its excess capital boosted by around £3bn. All the usual liquidity ratios look fine, and progress on debt reduction was strong in 2020.

Long-term problems sorted?

I might sound like I’m painting a glowing picture of the firm here. But I definitely don’t want to downplay the negatives. The Aviva share price is still down 11% over the past 10 years. That’s when the Footsie as a whole gained 15%. The main reason seems to be an institutional view that Aviva had become something of a bloated and slow-moving monster. Some were even calling for a break-up of the company as a way to enhance shareholder value.

And I have to remind myself that, even if I’m looking through optimistic eyes, I’m still sitting on a share price loss since I bought. I do have some decent years of dividends to compensate, mind. The bottom line for me? On 2020 earnings, the current Aviva share price represents a trailing P/E of less than six. I still rate it a buy for me.

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Alan Oscroft owns shares of Aviva and Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. 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.

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