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The Aviva (LSE: AV.) share price has been doing what I never expected to see it do – skyrocketing. It’s up 29% over the last year, 63% over two years and 152% over five years.
While other FTSE 100 financials are doing well, none can hold a candle to Aviva. I know, because I hold them. Sadly, I don’t hold Aviva.
It hasn’t just delivered growth in spades, it’s been dishing out dividends too. The trailing yield has dipped slightly, but only because of the surge in share price. Investors are still pocketing 5.63% a year, which is far from shabby.
Sharper, leaner, stronger
The business has transformed under CEO Amanda Blanc. She’s offloaded underperforming overseas assets and honed in on the core UK market. The £3.7bn acquisition of Direct Line should double down on that.
We saw the benefits in Aviva’s full-year results, published on 27 February. Operating profit rose 20% to £1.77bn and the dividend climbed 7% to 35.7p a share. Aviva is now targeting £2bn of operating profit by 2026. General insurance premiums and assets under management both grew strongly.
The company also clocked up record bulk purchase annuity sales of £7.8bn and a 42% spike in protection sales, helped by the purchase of AIG’s UK protection business. Blanc is now leaning into capital-light growth, which now drives 56% of operating profit.
Another strong quarter
The strong performance carried into 2025. In Q1, published in May, general insurance premiums, wealth net flows, retirement sales and annuity revenues all flew. So did protection and health insurance sales.
Blanc reckons Aviva is in “great shape”, and I can see why. The balance sheet is solid, the product range broad, and the customer base is now 17m strong. The firm says it’s confident in hitting all its medium-term financial goals.
There’s a catch. With the shares at an 18-year high, I’m now wondering how much further this can run. Twelve analysts have a median one-year price target of 649.2p, just 2% above today’s 634p. That reflects my concern that the share price gains may slow from here.
Income still rising
On the plus side, dividends are forecast to grow again, with a yield of 6.04% in 2025 and 6.48% in 2026.
Yet the valuation gives me pause. The trailing price-to-earnings ratio is a frothy 27.5, suggesting the stock is priced for perfection. That’s always a risk.
Another concern is that Aviva is heavily focused on the UK, which isn’t exactly in rude health right now. It operates in a highly competitive sector, and rivals will be battling hard to compete and play catch up. At today’s valuation, any earnings miss could be punished.
Still, 10 out of 14 analysts rate it a Buy or Strong Buy. If I held it, I wouldn’t be in a rush to sell. But with the shares looking fully valued, I’d be wary of opening a new position at this price.
That said, for long-term dividend investors, there’s still a lot to like. And with a yield this strong, some might consider buying anyway, even if the fireworks fade a little.
