The Aviva (LSE: AV) share price hasn’t done much lately but that doesn’t worry me. It’s a solid FTSE 100 blue-chip with a terrific dividend income stream, currently yielding 7.6%.
Its shares are becalmed today but that could change when the stock market finally rallies. Should I buy them before it does?
That’s quite a yield
Aviva’s recent underwhelming share price performance is understandable, given all the headwinds out there.
The company is vulnerable to stock market performance as it holds huge sums to fund customer claims, plus it also has an investment arm, Aviva Investors.
Falling markets hit net investor flows in the first quarter, which fell 15% to £2.3bn. However, total assets under management climbed 4% to £154bn as markets enjoyed a strong start to 2023. That may have petered out due to recent stock market volatility, though.
Group CEO Amanda Blanc has worked hard to knock the business into share and its general insurance, protection & health, workplace and retirement divisions all posted double-digit growth in Q1.
Private healthcare sales are booming amid growing disillusion with the NHS. Aviva is also enjoying success with bulk annuity sales and workplace pension schemes as higher wages feed through to higher pension contributions.
Its key general insurance business is also posting double-digit growth, impressive given the tough competition and the fact that Aviva shuns comparison sites.
Aviva is also on track to hit its £750m cost savings target by 2024, and has a solid Solvency II shareholder cover ratio of 196%. That’s after funding a £576m final dividend payment for 2022, along with a £300m share buy back and £75m pension scheme payment.
Blanc is committed to providing sustainable capital returns to shareholders, with dividend guidance of around £915m for 2023, and low-to mid-single digit growth in the cash cost of the dividend thereafter. Analysts expect a yield of 8.11% in 2023, rising to 8.62% in 2024.
Better times ahead?
If Aviva is so great, why is its share price so flat? That’s partly due to wider sentiment, which is negative today and may remain so. Also, investors can get higher yields from bonds or even cash, which has hit dividend stocks across the board. FTSE 100 stocks are out of favour, generally.
Much of this could change when the bull market finally arrives but I don’t think we’re there yet. Interest rates look set to stay higher for longer than we hoped.
There’s a risk that tighter monetary policy will tip the world into recession. As bond yields and cash savings rates rise, investors can get more income without having to take the added risk of equities.
Events in the Middle East could spiral out of control, driving up the oil price and smashing markets. On the other hand, we could still enjoy a Santa rally in the final months of 2023. As ever, the future’s not ours to see.
I’m not too worried. I’d rather buy Aviva before the next rally rather than afterwards. I’m keen to add it to my portfolio and will reinvesting those juicy dividends until brighter times and that bull market finally arrive.
