Is Aviva’s Share Price (LON:AV) Set To Break Out?

When looking for stocks in the FTSE 100 index, Aviva's share price is one that may be threatening to break out. The insurance giant Aviva (LON: AV) has drawn attention with its current valuation and performance, but is also trading close to a psychologically important level.

Current price action on Aviva shares at 495p has pulled back slightly from the recently hit 52 week highs of 508p hit just last week. Trading close to that 500p psychological level, indicates according to some stock breakout indicators that the shares may want to make a break from the current range and look to retest the next resistance levels. Seeing as the stock is trading close to multi year highs, outside of the recent 52 wk high, the next levels will likely come from price action in 2017, when levels of 525-535p were the highs of the period.

Part of considering breakouts is in the fundamentals, so let's take a quick look.

With shares priced at 11 times forecasted FY24 earnings, Aviva’s valuation lies below the long-term average for stocks in the index although it doesn't appear as lucrative as some of its peers, for instance, Prudential (LON: PRU), which is trading at less than nine times earnings.

However, price-earnings ratios only tell part of the story. Probing deeper into Aviva's financial heft, the company reported a 14% surge in operating profit, surpassing expectations and hitting £875 million, a notable increase from £765 million in the preceding year. This rise in profitability can be primarily attributed to heightened general insurance premiums in the British and Irish markets.

Another sign of the company's financial health is its asset management volume. As of June, Aviva managed nearly £400 billion in assets, showcasing its considerable clout in the financial sector. Adding to the appeal for income-seeking investors is the company’s interim payout, which has been raised to 11.9 pence per share – a 7% uptick from the previous year. For 2024, the projected total dividend stands at a generous 35.4 pence per share.

Dividend yield serves as another metric of evaluation and Aviva does not disappoint on this front, offering an enticing yield of 7%. This figure is twice that of the average yield provided by FTSE 100 companies, thus positioning Aviva as one of the most significant dividend contributors on the UK stock market.

The direction the company has taken under CEO Amanda Blanc provides further reasons for optimism. The executive has focused on slashing costs and divesting from non-essential assets, suggesting room for potential share price appreciation.

However, it's essential to consider the company's dividend-paying consistency. Aviva’s history showcases a mixed track record, with instances of cutting dividends during tough economic spells such as the pandemic. This might raise concerns regarding the reliability of its income distribution among cautious investors.

While no investment comes without risk, Aviva presents a compelling case for being regarded as a value stock within the FTSE 100. Its robust dividend yield, strategic corporate manoeuvres, and strong financials glint with promise. Still, investors must weigh these positive aspects against the inherent risks typical of the insurance industry and Aviva's own historical inconsistencies in dividend payments.