I don’t often check on one of my investment holdings and find it up 12% on the day. But that’s what happened to the Aviva (LSE: AV) share price on Wednesday. At least, that’s where it stood mid-afternoon when I was writing this.
So what’s it all about?
It’s all about Aviva’s first-half update. CEO Amanda Blanc said “Sales are up, operating profit is higher, our financial position is stronger. This has been an excellent six months for Aviva“.
Bumper results
Company bosses tend to put a gloss on things, but there doesn’t seem to be any need for that here.
The insurance giant’s operating profit rose by 14%, to £829m. General insurance premiums are up, solvency measures are all strengthening, and costs are down.
It wasn’t all brightness, though. Aviva reported an IFRS loss after tax of £633m. It’s hard to work out how a loss like this in accountancy terms actually reflects the company’s performance. But the company put it largely down to adverse market movements, adding that it had “no impact on capital or cash remittances“.
Show me the cash
As a long-term income investor, it’s all about cash generation and dividends for me. On that front, things look good.
Aviva is lifting its interim dividend by a whopping 40%, to 10.3p per share. The company’s full-year dividend guidance indicates around 31p per share.
Even on Wednesday’s elevated share price, that would still provide a yield of 6.7%. Those who bought at Tuesday’s close would be looking forward to a fat 7.5%.
I’m happy with the company’s restructuring under the leadership of Amanda Blanc. Assuming command in 2020, she took on no easy task. Investors saw Aviva as bloated and lacking focus for years, and that led to a lengthy period of share price weakness.
More to do yet
But we mustn’t lose sight of the work still to be done. And one good half is nowhere near enough to evaluate the long term potential.
With that caution in mind, I was buoyed by another development announced with these results. The company said: “Given our strong capital position and prospects, we anticipate commencing a new share buyback programme with the 2022 full year results, subject to market conditions and regulatory approval“.
I didn’t expect Aviva to be in a position to be returning capital this way at this stage. The fact that we’re getting a buyback suggests the company sees its shares as good value now.
Long way yet
We don’t know the size of the buyback yet, so I’m not getting too excited right now. The board will decide on the amount at the end of the year. And that’s a long way ahead yet, in today’s inflationary economic environment.
I’d also like to see that IFRS loss being reversed. It does leave me a bit twitchy.
Still, the bottom line for me is that Aviva is rewarding patient investors who saw the long-term potential. We can’t be sure we’re seeing what the fully reformed Aviva will be like yet, though, so there’s certainly risk still here.
But I could easily buy more shares after I accumulate my next chunk of investment cash.