7.7% yield! Should I buy Aviva shares today?

Aviva (LSE: AV) shares have had a bit of a pullback recently. Only a few weeks ago, they were trading around the 440p level. Today however, they’re close to the 400p mark.

Is now the time to buy the FTSE 100 stock for my portfolio? Let’s discuss.

Why did Aviva’s share price fall?

First, let’s look at why the Aviva share price has dipped. The main reason (ignoring general market weakness) is that the recent spike in gilt yields has spooked investors.

Given that Aviva is active in the LDI (liability driven investment) space, it most likely needed to stump up capital to meet margin calls on gilt derivative positions when gilt yields surged. I wrote about this issue when I covered Legal & General shares earlier in the week.

Now I don’t think there’s anything to worry about here. There are a couple of reasons I say this. The first is that Legal & General has come out and said it comfortably handled the surge in gilt yields. So I’d expect it to be a similar situation with Aviva.

The second is that on 30 September, three top-level insiders at Aviva, including CEO Amanda Blanc, purchased shares in the company. In total, these insiders bought around £600k worth of stock. I don’t think they would have done this if the company was in financial trouble.

So I don’t think investors need to be too concerned about this issue.

The new Aviva

Moving on from this, Aviva appears to be in good shape right now. Recently, it has streamlined its business. It’s now focused predominantly on the UK, Ireland, and Canada. This transformation appears to be paying off. In the first half of 2022, operating profit came in at £829m, up 14% year on year.

Meanwhile, the stock’s valuation seems quite reasonable. At present, analysts expect Aviva to generate earnings per share of 42.9p this year. At the current share price, that equates to a P/E ratio of just nine.

Big dividend

Of course, I can’t talk about Aviva and not mention the big dividend. In recent years, Aviva has been a cash cow. In its recent H1 results, the company said that it expects to pay out around 31p per share for the full year. This means there’s a yield of around 7.7% on offer here right now.

The company also mentioned in its H1 results that it’s planning a share buyback in the near future. “We are increasingly confident in Aviva’s prospects and anticipate commencing additional returns of capital to shareholders with our 2022 full year results,” said Blanc. This could boost earnings per share.

My move now

One issue here for me however, is that Aviva has been a very inconsistent performer in the past. This is illustrated by both its share price and its dividend track record. The former has gone nowhere since 2008 while the latter has been very up and down.

This is a bit of a turn-off for me. These days, I like to invest in companies that have excellent long-term track records when it comes to generating shareholder wealth.

In light of this issue, I’m going to leave Aviva shares on my watchlist for now. I need to see that the company can consistently perform well before I invest in it.