I’ve been thinking about Aviva (LSE: AV) recently, and what I’m looking for. And the latest trading update is now out. The Aviva share price is up in 2021, back to pre-pandemic levels. But back then, I still thought it was cheap. And if Aviva has come through the 2020 crash relatively unscathed, is it still a buy?
Dividends are surely key. Shareholders suffered a cut during the crash, at the direction of the The Prudential Regulation Authority (PRA). The dividend came back for 2020, but at 21p it was some way below 2018’s 30p payment. And the company had 30.9p down for 2019 before the PRA stepped in.
The same 21p again in 2021 would yield 5.1% on the current Aviva share price. I’ll be happy enough with that. But investors will surely be hoping for a return to the pre-pandemic progressive path.
The Aviva share price gained a couple of percent after the update. But it says nothing about the 2021 dividend. But then, trading updates tend not to. So what information was there that might paint a rosy dividend picture for the future?
The company reminded us it has disposed of eight businesses. The sales raised a total of £7.5bn, with the proceeds expected by the end of 2021. Those who saw Aviva as a bit bloated and needing to slim down and focus should be pleased. And the update did speak of Aviva’s plan for a “substantial return of capital to shareholders following completion of the announced transactions.”
Cash returns, debt reduction
So will we be getting a special dividend? Will we benefit from share buybacks with the additional cash? I’m happy with either. But I can’t help feeling that the Aviva share price will be best served in the long term by debt reduction.
On that front, chief executive Amanda Blanc said: “We have made excellent headway in reducing leverage with debt reduction of £1.9 billion in the first half of 2021 and we expect the leverage ratio to be around 26% at the half year.”
Solvency ratios are improving gradually, but they can change from quarter to quarter. I’ll keep watching out for a long-term trend. On costs, the firm said it is “on track to achieve savings of £300m relative to our 2018 baseline in 2022.” So what do I think of all of this?
Aviva share price future
I reckon it’s all good, and it does keep Aviva on my radar for a possible top-up buy. But the long-term future of the Aviva share price will surely depend on the refocusing strategy that was already in place before the pandemic crash.
On that topic, the CEO added: “We are now focused on improving the growth and profitability of our businesses in the UK, Ireland, Canada and Aviva Investors.“
That’s going to be the hard part, and I expect it’ll take a few years yet. And investors might not be fully won back until we see actual bottom-line progress, with dividends coming in ahead of 2018’s.
Aviva’s first-half results should be with us in August, and I’ll be looking for concrete dividend news then. That’s when I’ll decide whether or not to buy more.