Support builds for high-yielding insurer

High-yielding Aviva (LSE:AV.) shares have been backed to continue their momentum after last week’s latest set of robust results drew a strong response in the City.

Analysts at UBS and Bank of America followed up on the figures by lifting their price targets by 10p and 20p respectively to 590p, an upside of 17% on this afternoon’s level of 503.6p.

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The shares are up by a third in the past year but Bank of America said the company remains under-appreciated by investors and is deserving of a re-rating. 

The insurer, which is led by Amanda Blanc, extended its track record of delivery by reporting a 14% rise in operating profits to £875 million. This was 5% ahead of City forecasts.

Aviva provides savings, retirement pension products and general insurance including car and home cover to over 19 million customers across the UK, Ireland, and Canada. 

As well as forecasting its strongest ever year for bulk annuity sales, it is looking for 15% compound annual growth in Health profits over the three years to 2026 and for the near tripling of Wealth profits from 2023-28. 

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The 11.9p a share dividend declared for payment on 17 October met expectations and prior guidance, underpinning the forecast dividend yield of 7.3%. Together with share buybacks the projected all-in capital return yield stands at 10%.

UBS believes this is sustainable given that Aviva has one of the lowest-risk balance sheets within its UK life insurance coverage. It adds that Aviva is in a position to return about 30% of its market capitalisation to shareholders over the next three years, only marginally below peers. 

The Swiss bank said: “Aviva's relatively new management team has turned things around operationally, and we believe there is more to go as the business mix shifts towards higher multiple capital-light businesses.”

Bank of America praised Aviva for its strategy of focusing on fewer areas, which means it is now in position to deliver growth in new business volumes that will drive future profits and attractive capital returns to shareholders.

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It added: “Everything Aviva long-wanted to be, but past global ambitions meant it failed to be.

“Aviva's management team is now delivering what its predecessors hoped but failed (sometimes spectacularly) to deliver. This is no one-off in our view. Aviva is focused and building operational momentum; we think the shares have further to run.”

The bank forecasts 15% compound annual growth in earnings per share between 2023 and 2026, which in turns powers its estimate for 8% compound growth in dividends per share.

The bank added: “Given a starting base of a 7.3% 2024 dividend yield, this looks appealing to us. Especially after adding in the £350 million per annum of buybacks in 2025-26, which implies a 10% all-in yield in the coming 12 months.”