Aviva (LSE: AV) was hit especially hard by the 2020 stock market crash, but it’s put in an impressive recovery. Since late October, the Aviva share price is up 55%. So far in 2021 alone, we’re looking at a 24% rise, way ahead of the FTSE 100‘s 8.5%. Aviva is due to bring us a trading update on Thursday. So what will I, as a shareholder, be looking for?
My priority is pretty simple. In a word, dividends. That’s what I bought Aviva shares for. I’m hoping for an income stream that’ll keep going for a decade or more, so I don’t really care too much about where the share price goes in the near term. In fact, I’m almost disappointed Aviva and so many others have recovered from their pandemic kickings so well. I wanted to keep on buying cheaply for as long as I could.
The insurer did cut its 2019 dividend, which surely contributed to the Aviva share price crash. But that was only under instruction from the financial regulator. Is this a good moment for me to express my disapproval of regulatory authorities interfering in the free market? Well, I can understand why they did it this time, but I really don’t like it.
Aviva share price strength
But things are already looking better. And, for the 2020 year, dividends were back. Aviva paid a total of 21p per share, for a yield of 5.2% on the current price. In addition, shareholders got a delayed extra 6p per share in respect of the 2019 financial year. So the pain for income investors was relatively brief, and really not that bad.
What should we expect going forward? Well, I do like my dividends. But I get a bit twitchy when they’re being paid by a company carrying a lot of debt. I’d rather see excess capital being used to pay down debt today, to strengthen tomorrow’s dividend prospects. There are plans on that front too, which also seem to be supporting the current bull run for the Aviva share price.
Debt reduction
Announced at the time the 2020 results were out, Aviva intends to accelerate its debt reduction programme. That should bring an estimated £1.7bn drop in the first half of the current year. It’s perhaps ambitious, and if there’s any shortfall then Aviva shares could suffer a wobble. Aviva said debt reduction should bring it “closer to returning to shareholders excess capital above 180% Solvency II shareholder cover ratio.”
So those are the things I’m looking for. I hope to hear how progress on the debt reduction plan is going. And maybe some estimate of where it will be come year-end. Divestments play a part in the strategy too, so an update on that front will be welcome.
Where the Aviva share price goes in the coming months is anybody’s guess, and there are still risks investing in the financial sector. But I have an Aviva top-up on my list of investment possibilities.