The Aviva (LSE: AV) share price was on the front foot on Thursday with investors seemingly pleased with the insurance and wealth manager’s latest trading update.
I wonder if this may be the beginning of a sustained recovery.
Ahead of schedule
CEO Amanda Blanc stated that the £11bn cap had “delivered nine months of strong growth”, and it’s hard to disagree.
Despite facing the consequences of a tricky few weeks of adverse weather, general insurance premiums rose 13% to £8bn.
Elsewhere, the company reported a 26% jump in its workplace pensions business as a result of adding more than 350 corporate customers to its books and higher auto-enrolment contributions as wages rose.
Underlining the company’s diverse set of services, health sales also jumped by 56%.
Positive outlook
Looking ahead, Aviva said it still expects 5-7% growth in operating profit in 2023, assuming we don’t get any freak meteorological events for the rest of the year.
The company went on to say that it was “on track to exceed” its targets for the medium term. This includes delivering £750m in cost savings one year early.
So, I can see why the shares are reacting well to this news. Indeed, I would have expected a greater gain in the share price had it not been released on a day when the UK’s blue-chip index was struggling.
Fortunately, none of this really matters to a long-term-focused Fool.
8% dividend yield!
For me, the main reason for adding Aviva to my own portfolio remains the dividend stream.
In its latest statement, the company said it was committed to returning 33.4p per share to owners in FY23. Assuming this comes to pass, Aviva shares yield a meaty 8%. This would make it one of the biggest payers in the FTSE 100. Speaking of which, that yield is also double what I’d get if I just bought a bog standard fund that tracked the return of the index.
Naturally, that extra cash doesn’t come without taking on more risk. Notably, the share price has underperformed the FTSE 100 in 2023, making that higher yield look pretty redundant.
Moreover, Aviva has something of a chequered history when it comes to the amount of money it distributes to shareholders. A few years of hikes have typically been followed by the occasional (and substantial) cut.
Then again, one could argue that a suitably diversified portfolio should be able to take this sort of event in its stride.
A cautious buy?
The Aviva share price hasn’t been in great form for most of 2023. However, this latest update coupled with a slowly improving outlook on the economy suggests to me that investors may be past the worst. At this point, I’ll insert the caveat that no one truly knows what will happen next.
On which note, a still-reasonable valuation means Aviva could actually find itself subject to a formal takeover offer before long, as rumoured last month. This should never be the sole reason to invest, in my book. But the mere whiff of interest could provide a much-needed boost.
Based on what we do know, however, I’d consider buying the stock today if I were looking for a set of shares to deliver income and had the spare cash to buy.
