AV.L

Summary

Aviva is a high-quality insurance leader fitting the essential services mandate, offering a well-supported 5.3% dividend yield with a very conservative 24% payout ratio. The company's valuation is reasonable at a P/E of 14.1x, and it trades at 676.80 GBP, within its fair value range of 384-720 GBP. Given the strong fundamentals and sustainable income stream, Aviva is worth considering for new positions for investors seeking exposure to the stable insurance sector. Existing shareholders should maintain their positions.

Sector Context

As an insurance company, Aviva's business model involves using customer premiums ('float') for investment, making traditional debt metrics like Net Debt/EBITDA (5.69x) less meaningful. The low Debt/Equity ratio of 0.72 is a more appropriate and very healthy indicator of financial stability for this sector. The very low payout ratio (24.4%) provides a significant buffer for dividend safety and future growth, which is a strong positive.

✓ Why We Like It

• • Strong dividend yield of 5.34% is well-supported by an extremely low and safe payout ratio of 24.4%.
• • Fits the 'essential services' criteria within the Insurance sector, a core focus for the strategy.
• • Valuation is reasonable with a P/E of 14.1x, falling within the strategy's ideal 8-15x range.
• • The 2020 dividend cut was a prudent strategic reset, not a sign of distress, indicating quality management and a sustainable go-forward policy.
• • Positive market sentiment, with analysts including it as a top sector pick, supports the investment thesis.

⚠ What to Watch

• • Net Debt/EBITDA of 5.69x is numerically high, although this metric is less relevant for insurers where Debt/Equity (a healthy 0.72) is a better indicator.
• • Recent strong share price performance has reduced the deep value opportunity that may have existed previously, with the price now trading towards the upper end of its fair value range.