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Up 11% in 2025, the FTSE 100 index is having an uncharacteristically great year. But even this pales in comparison to the return delivered by Aviva (LSE: AV) shares.
Let’s take a closer look at that outperformance.
How much?!
If an investor has put £10,000 to work in the stock when markets opened as 2025 kicked off, their original stake in the insurance and retirement giant would now be worth somewhere in the region of £13,900.
Actually, the real result is a little bit better than that. Holders would have received a 23.8p per share dividend in May.
Here we have another example of a ‘boring’ business being a great investment, underlining the point that one doesn’t need to take massive risks when it comes to stock-picking.
The five-year performance is even better. Anyone investing that £10,000 in the very same shares when we were all sitting at home during the first Covid-19 lockdown would be up 130% by now. Again, this doesn’t even take account of the extra boost that will have come from dividends.
Why has Aviva been doing so well?
There are a number of reasons for this purple patch.
The deal to snap up major competitor Direct Line and thus increase its market share clearly went down well with investors. In other news, Aviva has been beating analyst expectations on profit as CEO Amanda Blanc’s efforts to streamline the business in the last few years come to fruition.
The aformentioned income stream also remains attractive. As thing stand, the shares offer a forecast dividend yield of 5.8% for FY25. Sure, this cash can never be guaranteed and Aviva’s distributions have been a bit volatile over the years. But it’s also far above the average of stocks in the Footsie.
What now?
Half-year numbers are due tomorrow (14 August). If there’s evidence of group-wide premiums and retirement sales rising again, the positive momentum might continue, especially as Aviva shares trade at a price-to-earnings (P/E) ratio of 13. That’s pretty much on par with the average in the UK stock market. So, we’re not talking about an eye-watering valuation just yet, though it doesn’t feel controversial to say that a fair bit of good news is probably already priced in.
Even so, it’s worth any potential buyers being aware that the majority of Aviva’s profits are derived from the UK. That could present problems if economic clouds gather. The wealth management arm could be particularly vulnerable to a market correction or crash as investors withdraw their money, impacting on the fees it receives.
Elsewhere, the insurance division is always susceptible to some kind of event or catastrophe. Integrating Direct Line might also prove more problematic than first thought.
Finally, it’s worth pointing out that Aviva’s share price is at its highest point since the great financial crisis. Put another way, anyone who bought back in 2008 would have only recently stopped being underwater.
So, yes, Aviva shares have done well this year and could motor even higher.
But that last titbit shows why staying diversified in good times and bad is the Foolish way.
