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I haven’t written about Aviva (LSE: AV) shares that often for The Motley Fool lately. Truth is, they’re a bit of a sore point for me.
In early 2023, when topping up a Self-Invested Personal Pension (SIPP) I’d just populated with a mix of personal and company pensions, I took a good look at Aviva and wondered whether to buy. I also looked at rival FTSE 100 insurer and asset manager Legal & General Group. As I recall, the latter was cheaper, trading on a lower price-to-earnings ratio, and offered a higher yield. So I went with that.
I tend to be a bit of a contrarian, backing out-of-favour stocks rather than chasing big winners in the hope they recover on my watch. That’s worked well overall, but not here. While Legal & General shares have continued to idle, Aviva’s powered on.
Two FTSE 100 rivals, only one winner
Over the last 12 months, Aviva’s up almost 38%, and 115% over five years. In dismal contrast, Legal & General shares are up just 6% over one year and flat over five. Clearly, I backed the wrong horse. The only consolation is that Legal & General pays more income, with a trailing dividend yield of 8.7%, but that’s largely due to its rotten share price performance.
Despite Aviva’s strong run, it still yields a solid 5.44%. That’s way above the FTSE 100 average of 3.25%. It now looks like one of the best all-round stocks on the blue-chip index, delivering both share price growth and solid dividend income.
Yet a few years ago, Aviva was much like Legal & General today, its shares drifting sideways. They ignited after Amanda Blanc’s appointment in July 2020. Her mission was to transform Aviva into a capital-light, industry-leading operation and reignite growth. So far, she’s done a brilliant job.
In full-year 2023, Aviva posted operating profit of £1.47bn, up 9% on 2022. That increased 20% to £1.77bn in 2024. Yet on 13 November, the shares fell after Aviva said operating profit for 2025 was on course to hit to £2.2bn.
That’s still impressive in my book, but markets had hoped for more. Investor expectations had clearly raced ahead of themselves. The stock dropped sharply on the day and is down 6% over the last month. That’s a serious overreaction, in my view.
Although I can’t see why investors are concerned, as the price-to-earnings ratio has jumped to 27.5, way above the FTSE 100 average of around 17. So is Aviva worth considering today? I think so. The forward P/E looks a lot less challenging at 13.4, while the full-year dividend is forecast to hit 5.94%, rising to 6.36% in 2026.
Investors have cooled on Aviva and I suspect its shares might now idle for a while, but at least that means some of the froth’s gone. For investors willing to take a long-term view, I think they’re still well worth considering. As for myself, I’ll stick with Legal & General shares, and hope 2026 is the year they do an Aviva.
