Interactive Investor

Dividend stock Aviva breaks records in Q1

27th May 2021 08:06

Richard Hunter from interactive investor

Aviva shares are back at pre-Covid levels, and these results justify market confidence.

Aviva (LSE:AV.) has continued its solid progress, underpinned by record flows to its Savings & Retirement (S&R) business and with further disposals pointing towards its more focused and streamlined ambitions.

Eight further non-core businesses have been sold, with expected proceeds of £7.5 billion, as the group closes in on its plan to focus on the UK, Ireland and Canada. Aviva has confirmed that there will be a substantial return of capital to shareholders on completion of the sales, with details being announced later in the year on completion of the deals. Indeed, previous market estimates of a return of £3 billion could yet prove to be a touch conservative.

The financial strength of the group does not require further capital at the moment, which could also play into a larger payout. A solvency ratio of 209% and capital surplus of £12.5 billion is reflective of a robust balance sheet, while the ongoing payment of the dividend is secure. The current yield of 5.3% is a clear attraction to income-seeking investors, particularly in the current interest rate environment.

At the same time, record quarterly inflows have been announced in the Savings & Retirement business, jumping by 31%, while S&R sales have added 23%, with Workplace and Platform contributing increases of 22% and 26% respectively. Annuities and equity release sales have fallen by 52% against strong comparatives and lower bulk annuity sales, although in the case of the latter the pipeline is strong.

Importantly, the Combined Operating Ratio (COR) has declined to 90.6% from a previous 118.7%, an important underwriting metric where the ratio needs to be below 100% to be profitable. The return to some kind of economic normality is likely to lessen this rate of improvement over the next few months, although the group still anticipates a COR of around 95%.

There have also been fewer claims from, and appetite for, motor and travel insurance, although these could also normalise in the coming quarters as travel in general becomes increasingly possible. In the meantime, general insurance sales have seen their strongest growth in a decade, with Aviva targeting profitability of new business over pure volumes.

As the group has continued to pursue its defined strategy, the shares have had a strong run, having risen 61% over the last year, as compared to a hike of 14% for the wider FTSE 100 index. There remains work to be done, however, as exemplified by the share price performance over the last three years, which remains down by 25%. Even so, progress is evident and the market consensus of the shares as a 'strong buy' is reflective of strong confidence in Aviva’s prospects.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.