Aviva shares attractive for the dividend

Aviva unveiled a bullish set of half-year results, with profits up 8% on the previous year. In fact, the insurer says that its performance in 2023 is likely to beat its current “medium term” expectations. Operating profits rose 8% for the first six months of the year to £716 million (£661 million in 2022).

Solvency II operating own funds generation – Aviva’s free capital - increased by 26% to £648 million (from £514 million last year). Meanwhile, its Solvency II shareholder cover ratio dipped by 10 percentage points (from 212% in 2022) but remained healthy at 202%.

Aviva showing resilience

General insurance gross premiums rose by 12% to £5.3 billion (against £4.7 billion last year), while retirement sales increased by 17% to £3.2 billion.

“Aviva is delivering consistently strong and profitable growth,” group chief executive Amanda Blanc told investors. “In the first half of 2023 we grew sales, operating profit and dividends for our shareholders… In the UK and Ireland, general insurance premiums were up 13%, with healthy sales in both our commercial and personal lines businesses, where our Aviva Zero product has now attracted 250,000 new policies since launch.”

Blanc says that despite tough trading conditions in its wealth division, its workplace business grew net flows by 25%. Insurance, wealth and retirement value of new business (VNB) increased by 7% to £319 million (from £297 million in the same period in 2022).

Meanwhile, private health insurance sales rose by 58% and the Canadian general insurance division saw sales increase by 12%.

Aviva: bumper dividend

Meanwhile, Blanc said that the insurer’s cash position remains “robust” and that it is raising the interim dividend by 8% to 11.1p. The company estimates that full-year 2023 operating profit will grow at between 5% and 7% from £1.34 billion in 2022. While the insurer did not make any definite statements about returning more cash to shareholders, it said that it “anticipates further regular and sustainable capital returns in the future.” The insurer announced an additional £300 million return to investors earlier this year.

Aviva has successfully managed to absorb inflationary cost hikes of around 7% during the period, with baseline costs remaining flat at £1.3 billion. The company also says it expects to meet its target of cutting £750 million in gross costs – previously set for 2024 – a year early. It is also on track to exceed its Solvency II operating own funds generation target of £1.5 billion and its cumulative cash remittance target for 2022-2024 to more than £5.4 billion.

Rhea Shah, analyst at Deutsche Bank, reiterated its buy recommendation in a note, saying the broker "continue[s] to find the shares attractive on a 14% 2024 free cash flow yield, with circa 12% total capital return yield."

The shares are down 13% this year to 382.1p but are worth buying for the inflation-busting dividend and growth, as well as the company’s ability to absorb inflationary costs.

Past performance is not an indicator of future returns