Are Aviva shares still a buy to consider for their 5.9% dividend yield after climbing 28% this year?

In the past 12 months, Aviva (LSE: AV.) shares have come alive and look to have finally managed to cast off the tag of being a ‘boring’ stock. However, with the share price now sitting at an 18-year high, the dividend yield has come down significantly. So are they still worth buying?

Q1 results

Looking at some of the headline numbers from its recent trading update, the insurance giant has picked up where it left off in 2024.

Its largest business, General Insurance, saw premiums rise by 9% to £2.9bn. Growth was strong both across personal and commercial lines.

The company’s partnership with Nationwide Building Society was a big driver for the 6% growth in UK personal lines premiums (eg car, home and travel). In commercial lines, the acquisition of Probitas, which provides it with access to the Lloyd’s of London insurance market, contributed toward the 17% growth.

Its portfolio is a majority-capital-light business today. Over the next two years it will be nearer 70% capital light. The acquisition of Direct Line Group will be a key driver of this increase as it unlocks synergies across the two businesses. At the moment the takeover’s being investigated by the Competition and Markets Authority. But I still expect the deal to be rubber stamped.

Dividend hikes

Over the past five years, Aviva’s returned £10bn in capital and dividends to shareholders. That represents about 62% of its current market-cap of £16bn. To me that highlights its shareholder-first approach to returns.

This year it intends to return two mid-single digit increases in the dividend cash cost. The first payment increase will reflect the organic growth across the business. Following the completion of the Direct Line Group deal, a second payment will be made. The total of these payouts is expected to more than offset the suspension of share buybacks in 2025.

From 2026, it expects to return to mid-single digit increase and to reinstate buybacks. The buybacks are important because the buyout deal will increase the total issued share capital.

Climate change

Hurricanes, floods, wildfires and other natural catastrophes linked to climate change present an emerging risk for Aviva.

Last year Canada, where it has a significant present, was the worst insured year for weather on record. Total losses for the insurance industry were over CA$8.5bn. These record losses fall on the heels of 2023 where Canadians made 8,000 claims across 17 natural catastrophes resulting in the business incurring losses of $200 million.

As these events become more frequent, the possibility of errors in underwriting leading to catastrophic losses can never be ruled out.

Despite such risks, there’s still so much to like about the business, not least huge growth opportunities across a number of its markets. The UK workplace pensions, advice and investments market are worth £1.8trn and growing at double digits. Insurance markets are growing rapidly too, off the back of growing populations and increasing requirements for commercial speciality insurance.

Consensus opinion across a group of analysts might indicate that the stock’s fairly priced today. But looking longer term, I remain optimistic about the prospects for the business. It remains one of my favoured picks and I intend to add to my position again soon.

The post Are Aviva shares still a buy to consider for their 5.9% dividend yield after climbing 28% this year? appeared first on The Motley Fool UK.

Pound coins for sale — 31 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More reading

Andrew Mackie has positions in Aviva Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.