Aviva (LSE: AV.) shares have been on a roll lately. They’re up 14.5% in the last six months, 11.3% year to date, and an impressive 25.2% over the last 12 months. That’s excluding its chunky dividend yield, which I’ll touch on later.
They’ve outperformed the FTSE 100 across all three time periods. While buying index trackers is a smart way to invest, picking individual stocks certainly has its benefits.
With that in mind, would Aviva make a smart buy today? I’m looking for the next addition to my portfolio and Aviva is high up on my watchlist.
Should you invest £1,000 in Aviva right now?
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I ask myself this question every time I consider investing in a business, could I see me holding its shares for the next decade?
Short-term risks?
With Aviva, I’d say I do. But before I explain why, I want to address the risks I see. One of the main ones is competition. The insurance industry’s highly competitive and especially with the rise of insurtechs, Aviva will have to stave off plenty of threats in the years to come.
On top of that, high interest rates are bad news for the business. A delay in rate cuts could spell trouble.
Long-term gains?
But if I see a business with plenty of growth potential on a strong trajectory, I’m happy to ride some short-term peaks and troughs. With Aviva, I do.
I say that mainly because of its recent turnaround. A couple of years ago, Aviva was an inflated business spread too thinly across too many markets and regions. CEO Amanda Blanc has made good progress in streamlining the business.
In recent quarters Aviva has offloaded underperforming units and focused more on those that generate the most profit. For example, in Q1 the business exited its Singapore joint venture for a total consideration of over £900m.
At the same time, it completed the acquisition of AIG’s UK protection business for £453m. It’s placing greater emphasis on the UK market so that move makes sense.
Passive income
I mentioned at the top about the passive income potential with Aviva through its meaty yield. That’s another reason I could see the stock being a smart addition to my portfolio for the years to come.
As I write, it yields 6.9%. That’s way above the FTSE 100 average of 3.6% and there are just eight stocks that offer a higher payout. One of those is Vodafone, which is cutting its payout in half from next year. So in theory, there’ll only be seven.
I reckon we could see its payout climb in the times ahead. Last year, it boosted its total dividend by 8% to 33.4p per share. Its forward yield for this year’s 7.1%. By 2026, that’s forecast to rise to 8.4%.
While of course that’s only a prediction, it would place it sixth highest yielder on the FTSE 100 as things stand. Not bad. Alongside increasing its dividend last year, the firm announced a £300m share buyback programme.
So the appetite from management to reward shareholders is clearly there, which is always good to see.
Smart buy?
I reckon Aviva could be a shrewd buy for me today for the next decade as it continues with its streamlining mission. I’m keen to pick up some shares.
