The Aviva (LSE: AV) share price has staged a barnstorming recovery over the past year, jumping 57%. I’m delighted, because I have been backing this stock for years, only to see it deliver one false start after another.
I’m not getting carried away, though, because the Aviva share price still trades 8% lower than five years ago. It hasn’t suddenly transformed into a whizzy growth stock, and I don’t really want it to. The main reason I have repeatedly backed the FTSE 100 insurer is that it offers great long-term dividend income prospects.
That is still the case today. Aviva scrapped its dividend in the first lockdown, but has subsequently restored shareholder payouts. Right now, it yields 6.5%, covered twice by earnings. That makes it one of the most generous income stocks around.
Top FTSE 100 dividend stock
Despite its recent share price success, Aviva is not expensive. It is valued at just 7.7 times earnings, so investors aren’t paying over the odds. While I wouldn’t expect the stock to jump another 50% in the next year, it still has room to grow in the longer run.
New CEO Amanda Blanc is giving the business a much-needed overhaul, pulling out of non-core markets including Italy, France, Singapore, Vietnam and Poland. This will allow the group to focus on its core markets in the UK, Ireland and Canada. It has also delivered a real cash and liquidity boost, with its combined disposals to raise £7.5bn by the end of this year. Some of that will be returned to shareholders.
The Aviva share price is flying
This week’s Q1 results were a little disappointing. New life, annuity and equity release business premiums were flat, albeit against strong comparatives last year. On the plus side, general insurance premiums rose 4% to £2bn, as Aviva started selling on price comparison websites. Inflows to its workplace and IFA savings and pension platforms rose by a third.
The Aviva share price could get a further lift when management delivers on its promise of “substantial return of capital to shareholders”, through dividends and share buy-backs. Personally, I would like it to reserve some of the money to accelerate plans to pay down debt.
Another concern is that after the recent strong run, the Aviva share price could get punished by a bout of profit-taking. If that happens, I would take advantage of any dips, because I think this is a strong long-term buy and hold, and a great portfolio cornerstone. I would look to reinvest my dividends to buy more stock, then draw them to top up my income in retirement.
Much now depends on whether Aviva’s new focused strategy will drive the share price even higher. I am optimistic, though. Today’s high yield and low valuation make Aviva one of the most attractive shares on the FTSE 100. The price looks right to me.
