Aviva’s share price is up 27% in 2021. Should I buy?

The Aviva (LSE: AV) share price is up 45.1% in the last 12 months and 26.8% in 2021. The company has massively refocused its business strategy in the last year and looks to be reaping the rewards. Is now a good time to add Aviva shares to my portfolio?

Strong financials

The company has made a good start to the year with operating profits up 17% to £725m in the first half (H1) of 2021. The firm’s asset management business grew by £829m, taking the total funds managed to £260bn.

The company managed to reduce external debt by £1.9bn in H1 2021 which could bring the leverage ratio down to 26% by 2022. A further £1bn debt reduction is expected along with a £700m reduction in internal loans following the sale of French and Polish operations.

Boosted shareholder returns

This brings me to Aviva’s massive restructuring in market focus. The insurer has sold non-core operations in Turkey, France and smaller Asian markets like Indonesia. This move is set to bring in £7.5bn. This has prompted the company to rollout a £4bn shareholder payout that CEO Amanda Blanc announced in the H1 2021 trading update.

The payouts will be initiated by mid-2022 starting with an immediate £750m share buyback. The company boosted its interim dividend by 5% to 7.35p which brings the total dividend yield to a solid 5.14%. As a potential investor focused on long-term returns, this is a very encouraging sign. 

Holdings in key Asian markets

Along with a renewed focus on the UK, Irish, and Canadian markets, Aviva has retained ventures in China and India. I follow the Asian markets closely and predict a massive increase in spending potential in the next decade. Insurance service penetration in China and India remains low, which I think Aviva could benefit from.

Although there have been reports that the company plans on offloading its business in India, the Chinese market remains an area of focus. The booming Chinese economy, coupled with the large earning population points me to a possible boost in insurance sales there in the near future.

Risks

The renewed focus on European markets brings with it renewed competition from other insurance giants like Legal & General and Admiral. Both insurers offer a better dividend yield at 7% and 7.5% respectively. In fact, LGEN was on my list of stocks to buy for its incredible returns. The competition could split investor opinion when it comes to choosing a stock in the insurance sector.

Also, the spike in shareholder returns stems from a massive sell-off that is likely a one-time event. However, I see the payout as a prudent move which reinforces shareholder confidence and could increase available capital for the company in the long run. 

Also, Swedish investment firm Cevian Capital recently acquired a 5% stake in Aviva and predicts that share prices could hit 800p, doubling current dividends by 2024. This means that an investment in Aviva today could more than double in the next three years. I see the insurer as a safe investment. After a year of turbulence in the market, my portfolio needs a proven performer with potential for explosive growth in the next few years and Aviva fits the bill.