For most of the first six months of 2022, my wife and I largely refrained from buying new shares. Instead, we built up our ‘dry powder’, building a cash pile from share sales and regular cash dividends. However, as H1/2022 came to a close, we sprang into action. Taking advantage of the usual summer lull in global share prices, we bought 10 new stocks. And one investment for our new portfolio was in Aviva (LSE: AV) shares.
Why we bought Aviva
For the record, my wife bought Aviva shares for our family portfolio at an all-in price of 397p each on 26 July. This price includes the 0.5% stamp duty on purchases, plus share-dealing commission. But what made us decide to buy this stock?
Having worked in the insurance/investment industry for 15 years, I’m very familiar with Aviva, its business model and its products. The group is one of the UK’s leading providers of life and general insurance. It has around 18m customers across the UK, Ireland and Canada, and employs roughly 22,000 people. And with a market value of £13bn, it’s a FTSE 100 middleweight.
So that’s the business. But what about its shares? What drew me to the stock is that its dividend yield was close to 7% a year at that time. To me, this seemed like a generous reward for the risk of holding these shares over the long term. And although this cash payout wasn’t covered by the insurer’s trailing earnings, I expected them to rebound in 2022-23.
Stock soars on good news
At its 52-week high on 29 March, Aviva stock hit 606.58p. It then crashed spectacularly, falling to a 52-week low of 382.3p on 5 July. How I’d have loved to buy into this Footsie firm at this price. Nevertheless, we managed to climb aboard the bandwagon at around 17p above this 2022 low.
As I write, the share price stands at 463.3p, over 66p (+16.7%) above our buying price. What caused this sudden spike in the price? In its first-half results for 2022, the insurer reported increased product sales, higher operating profit (up 14%), and a strengthened balance sheet. CEO Amanda Blanc summed up these results, saying: “This has been an excellent six months for Aviva.”
What’s more, the group announced a new share buyback, plus it increased its interim dividend to 10.3p a share, a huge uplift of 40%. The full-year dividend is expected to be 31p per share, producing a current dividend yield of 6.7% a year. That’s around 1.7 times the FTSE 100’s cash yield.
I’d keep buying
One old expression goes: “One swallow does not a summer make.” Likewise, I’d say that one good set of results — by itself — is no reason to buy into a company. Then again, after a tough 2020-21, I think things may finally be looking up for the firm. Higher interest rates helped to generate £798m of operating cash flow in H1/2022. In a further boost for shareholders, the 2023 dividend has been set at 32.5p a share.
In summary, despite worries about red-hot inflation, soaring energy bills, rising interest rates, war in Ukraine, and slowing economic growth, Aviva shares still look cheap to me. I won’t sell and we might even buy more!
