Aviva (LSE: AV) dipped sharply, along with the whole financial sector, in the early days of the war in Ukraine. But after hitting a low on 7 March, the Aviva share price has bounced back. It is now up 8% over the past 12 months.
That’s perhaps not so great seen against a 21% loss over five years. But we are at least looking at a share price that’s back to pre-pandemic levels. So what do I think will happen over the rest of 2022?
I reckon I’m seeing resilience in the UK financial sector now. And the quick rebound after this recent shock helps convince me of that. After years of blow upon blow to our financial services, perhaps investors finally believe we’re past the bottom? And maybe they’re buying when the Aviva share price dips?
That’s certainly part of my strategy, buying shares in good companies when their prices are down. But is Aviva a good company? For years, the market’s answer to that was no. The company was seen to be a bit bloated where it needed to be leaner, and not well integrated.
But a couple of years of restructuring later, I find 2021 results encouraging. The figures, released on 2 March, showed a 22% rise in cash remittances. Aviva’s general insurance business grew 6%, and new life business climbed 23%.
The only real downside was a 10% dip in adjusted operating profit. But the company still saw fit to lift its dividend by 5%, to 22.05p per share. On the current Aviva share price, that’s a yield of 5.2%.
As a shareholder, I’m very happy to take that. And if it represents a renewed progressive spell, I reckon it could mean the shares are undervalued today. But that will depend on how the restructured Aviva performs.
Chief executive Amanda Blanc said: “2021 was a year of significant strategic progress, right across Aviva. We successfully completed the sale of eight non-core businesses, generating excellent value for our shareholders. Our financial position is strengthened and Aviva is now a much simpler, leaner business, focused on our core markets in the UK, Ireland and Canada.”
After those disposals, Aviva has announced the return of £4.75bn in capital to shareholders. That’s partly by way of a share buyback, suggesting the company thinks its shares are undervalued. Blanc also told us that Aviva is “giving each of our 22,000 employees £1,000 in Aviva shares, to say thank you.” I like that.
Aviva share price future
This all sounds good, but I remain cautious. I’m well aware that all this talk of disposals and share buybacks makes things look rosy. But it does tend to distract from what really counts. And that’s the hard work of getting the new Aviva to create growing profits, year after year, and generate cash to pay progressive dividends.
It suspect it could take at least another year’s worth of results to shake off investor uncertainty. And because of that, I think the Aviva share price may well see only modest progress in 2022. But Aviva is a long-term hold for me.
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Alan Oscroft owns Aviva. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.