I bought some Aviva(LSE: AV) shares in 2015 when it really looked like the insurer had properly refocused its previously overstretched self. And I though its balance sheet was looking solid.
Then the Brexit vote struck and Aviva plunged along with the rest of the sector. Even after a bit of a recovery, the Aviva share price has stagnated over the past year. At a shade under 500p today I'm a mere 5% up (after charges) on a share that I'd seen as super cheap nearly three years ago.
But what I really bought Aviva shares for was the dividend. Including that I'm up 14%, which is fine, if not staggering.
As an aside, my Aviva dividends went towards buying some Sirius Minerals shares -- and those are now up 80%. Reinvesting dividends in new shares is a key part of my strategy.
But what about the Aviva price? I reckon it's still in serious bargain territory. Earnings have been a bit erratic, but a forecast EPS rise of around 65% puts the shares on a forward P/E of under nine. And that's for a stock with a forecast dividend yield of 5.7% this year, growing to 6.4% in 2019.
Compared to the FTSE 100 long-term average of around 14 (even with an unusually high average dividend yield this year of close to 4.5%), I think there would need to be some significant bad news around to justify such a low price for Aviva -- and I'm just not seeing it.
Although it's not big on my checklist, I'm buoyed by seeing a pretty strong "Buy" consensus among analysts at the moment, coupled with a rising trend in EPS forecasts over the past 12 months.
The consensus among price targets seems to be around the 600p mark too, a sentiment with which my Motley Fool colleague Rupert Hargreaves appears to agree. As Rupert points out, Aviva is still working on improving its balance sheet by, among other things, selling off non-core businesses to free up capital and making big efforts to pay down debt.
And the company itself appears to see its shares as too cheap right now, having launched a £600m share buyback in May as part of its deployment of £2bn of excess capital in 2018.
I always wonder whether a share buyback or a special dividend is the best idea, and in many ways I like the approach of simply handing over cash for shareholders to do what they want with. But with dividend yields already high and expected to continue to rise, a share buyback can turn what would be more erratic rewards into something more gradual over the longer term -- and that stability can be a benefit.
Reducing the number of shares in existence should, all things being equal, provide a boost to earnings per remaining share and strengthen the company's ability to keep its ordinary dividend progressive.
I see an uprating of the Aviva share price as almost inevitable, but what might trigger it? I remain convinced that the uncertainty surrounding Brexit is holding back the sector in general and Aviva's significant European business is not helped by the lack of clarity.
But I see Aviva shares as a very attractive five-year prospect. And I'm certainly holding.
Following Brexit, fear and indecision could hurt share prices in the coming months. That's why the analysts at the Motley Fool have written a free guide called "Brexit: Your 5-Step Investor's Survival Guide". To get your copy of the guide, click here now!
Alan Oscroft owns shares of Aviva and Sirius Minerals. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.