I’m seeing now as a great time to opt out of a company pension and transfer to a Self-Invested Personal Pension (SIPP). You have to be comfortable with the idea of managing your own investments, of course — and only you can decide if that’s the case.
But I think the time is ripe because many pension funds are making generous cash offers to buy people out. I’m currently working on transferring one of mine, and the currently indicated valuation is quite a bit more than it was the last time I had a quote before the most recent round of pension rules relaxation — I’m so glad I didn’t transfer out back then.
I’m building a shortlist of mainly FTSE 100Â dividend stocks for my next pension investments, and I’ve already explained why Barclays makes the grade. But don’t you find it frustrating when the shares that best satisfy your criteria turn out to be ones you already own?
More of the same?
I have that problem with Aviva (LSE: AV), which I already hold in my SIPP. When I run my various filters looking for top Footsie dividends with decent cover, from shares on what I see as unfairly low P/E valuations, Aviva is there every time.
Although I like diversification in my portfolio, I’d still rather top up on one of my favourite stocks than buy a new one that I like a lot less just to get something different — I don’t want to di-worse-ify. So a top-up on Aviva is very much one of my options.
My record so far doesn’t look great on the face of it, as I originally bought at 472p and my holding is down 12%. But that’s only part of the picture, as the dividends I’ve received since I bought the shares in 2015 have amounted to 17%. And as I reinvested those dividends in Sirius Minerals shares which have since risen, my Aviva dividends have effectively given me a 21% return, and I’m 9% ahead overall on the deal.
Lovely dividend cash
We’re looking at forecast dividend yields of better than 7% this year and 8% next, which would be covered 1.9 times by earnings this year and 1.8 times on 2019 forecasts. That’s from shares on forward P/E multiples of seven and under, and I reckon those fundamental measures make Aviva look attractive on their own.
But Aviva has been in trouble with dividends before and found itself overstretched during the financial liquidity crisis — and the dividend had to be slashed. But the firm looks in far better shape now, and I really can’t see it being burned the same way again any time soon.
Beating the cycles
That brings me to something else where I think private investors have an advantage over the big institutions — the cyclical nature of the insurance business. While fund managers don’t like the risk of holding short-term capital losses (like mine at the moment), our long-term horizons mean we can take it in our stride.
I personally don’t care too much what happens this year or next with my stocks, as long as I see a strong candidate for good returns over the next decade or so. And as I’m still in net investing mode, I’m actually pleased that Aviva shares have become even cheaper.