Is Aviva’s share price a possible income play?

Aviva’s share price is trading at lows not seen for almost three years. Inflationary pressures have sapped investor confidence, with Aviva and other insurers suffering. In another blow, rival Direct Line has poached a top executive from Aviva to fill its vacant CEO post. But it’s not all bad news, with Aviva delivering robust interim results, including an 8% increase in its dividend payout.

  • Aviva’s Adam Winslow joins rival Direct Line as chief executive.
  • Aviva’s share price continues to slump, as does the wider insurance sector.
  • Aviva offers shareholders an 11.1p per share interim payout.

Aviva’s [AV] share price closed Friday at 369.2p, a level last seen in November 2020. Back then, the markets were in the grip of the pandemic. But what’s eating at investor sentiment almost three years later?

Aviva’s interim profits were robust, and CEO Amanda Blanc has suggested that the current crisis in the NHS posed opportunities for the insurer.

The slump isn’t just localised to Aviva’s share price; it’s something happening across the insurance industry. Legal and General [LGEN.L] is down 13% this year, while Direct Line [DLG.L] has lost nearly 18%. Yet the current malaise in the Aviva share price — and the wider insurance sector — could represent an opportunity to pick up stocks with a decent dividend.

Direct Line poaches top Aviva executive

Direct Line hired Aviva’s Adam Winslow as its new chief executive last month. Rumours about Winslow, who had overseen Aviva’s international business, being on the lookout for a move had been swirling since Sky News reported he was in talks with the rival insurer best known for its vehicle cover.

Winslow is expected to take up the role in the first three months of 2024, succeeding Direct Line’s acting CEO Jon Greenwood.

“Adam has deep expertise in the UK general insurance market and significant leadership experience, spanning two decades across personal and commercial lines insurance,” said Danuta Gray, Chair of Direct Line Group.

Winslow will have his work cut out for him at Direct Line. Pre-tax losses hit £76m in the first half of 2023, as a rise in inflation pushed up the costs of car repairs. Along with a floundering share price, Direct Line has also been forced to cut its dividend.

At Winslow’s former employer Aviva, senior management is being reinforced with the appointment of Jason Storah as CEO, UK & Ireland General Insurance and Tracy Garrad as CEO of Aviva Canada.

Jason Storah had been in charge of Aviva’s Canadian operations for the past four years, where he led the company to become the second-biggest general insurer in the country. Tracy Garrad comes from AXA [CS.PA], where she was in its UK Healthcare business, and previously held senior roles at HSBC and First Direct Bank.

Are Aviva shares a good income play?

With Aviva’s share price trading around at its current lows, the question is whether it’s hit bargain territory or if no amount of good news will turn things around. The stock is also well below its 50-day moving average of 384.32p.

Among the positives were robust interim numbers for the first six months of the year. Group operating profits were up 7% to £715m, driven by a 12% increase in Gross Insurance Performance in the UK, Ireland and Canada. Aviva said that it was forecasting a 5% to 7% increase in operating profits for the full year. The company also completed a £300m share buyback scheme in the first half of 2023.

For income-seekers, Aviva announced an 11p dividend payout per share during its interim results, an 8% increase year-on-year. With the insurance sector currently out of favour, this could represent an opportunity to pick up some stocks paying juicy yields at a discount. Along with Aviva, Legal and General has seen its share price slump this year yet offers a 9% yield, while AXA offers a 6% yield.

Among the analysts, Aviva has a 477.5p price target, which suggests a 29.3% upside on Friday's close.

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