With a 7% dividend, are Aviva shares a no-brainer buy now?

Aviva (LSE: AV.) Shares have gained ground since October. But even after rising 20% ​​in a little over three months, the price is still low enough to keep the forecast dividend yield up at 7%.

With such a huge dividend, why don’t investors pile in and drive up the price? I see some reasons, but they seem short term to me.

One is that Aviva has recorded several years of declining earnings. And the forecast for 2022 suggests some profit crunch. Full-year results are due on March 9, and the focus this year appears to be on building the business for the long term.

Refocus

It’s all part of restructuring and refocusing. Aviva has its fingers in many pies around the world, so many investors find it difficult to see the company merging. But the company shed its international business and now focuses on its core insurance markets in the UK, Ireland, and Canada.

I think that makes the business more streamlined for the future, and I strongly agree. But it also brings with it a new string of unknowns. The company will have to prove its new model to investors in the coming years.

It didn’t help that those years started with an economic crisis, rising energy costs, rising inflation, and rising interest rates. This is really not the most pleasant situation for companies operating in the financial sector.

new business

In its Q3 update in November, Aviva reported a 46% jump in new business value, with margins improving. Business looks positive all over the place.

Chief executive Amanda Blanc said: “We are on track to deliver on our financial targets and trading momentum is picking up. Our dividend guidance remains unchanged and, as previously announced, we expect to begin additional capital returns to shareholders with 2022 results.“.

The size and shape of any new capital return can give the shares a boost, when the results come out. But I can’t help but wonder if it will take longer for investors to get on board with Aviva’s renewed direction. And we may have to see a decline in global economic conditions.

Forecast

Analysts seem to be on board with the company’s current guidance. Forecasts show several years of earnings growth to follow, dropping the stock’s price-to-earnings ratio below eight by 2024. In the same time scale, experts have a dividend yield of up to 8%.

As always, investors should treat forecasts with caution. The brokers who make them tend to lean closer to the company line. And it’s often among the last to reflect a downturn in investor sentiment.

There are always risks ahead. Mainly, I think, they are the broader economy that faces financial companies everywhere. And I don’t expect rapid share price gains from Aviva. But I want to keep top up in Aviva from time to time, to lock in a long-term stream of dividends.