Don't let it get away!
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The company is a household name and has one of the fattest yields, at around 8%, of any FTSE 100 (UKX) stock. It is popular with value investors, but their hopes have repeatedly been frustrated. There was a real fear in the summer, when its languishing share price took the yield over 9%, that the company could be heading for a dividend cut.
But temporary executive chairman John MacFarlane has made monumental efforts to devise and execute a recovery strategy, and there is now a clear path to reconditioning the business that could finally lead to the share price rerating loyal investors have been waiting for.
Aviva has been looking for a new CEO since Andrew Moss was ousted in the "Shareholder Spring," as much because of shareholder ire over his generous remuneration than the company's underperformance. It could prove to be one of the most rewarding shareholder coups of recent times.
Following Moss's departure, chairman John McFarlane took on executive responsibilities, rolled up his sleeves, and set about turning around the company, doing things that Aviva's bureaucratic and overstaffed management had just talked about.
Top of his agenda was to sell or close non-core operations, trimming the company down to focus on where it has competitive strengths. Its shareholding in Dutch Delta Lloyd has been substantially reduced, and smaller Far Eastern operations exited.
Most importantly, it appears that Aviva's U.S. operation is close to being sold. The Sunday Telegraph recently reported that the company has entered into exclusive talks with U.S. investment company Guggenheim Partners. Although this will generate a paper loss, it will boost Aviva's capital and reduce its gearing, both of which are poorer than industry peers'.
The new man
McFarlane's rapid action stabilized the company at what could have been a dangerous time. But it raised the danger that a new CEO would change direction yet again. So new man Mark Wilson, who takes over as CEO on 1 January, was at pains yesterday to commend "the first stage of the strategy that addresses the immediate issues." He will pursue its execution with "rigour and focus."
His appointment is possibly an insight into the board's thinking. A New Zealander, he was formerly CEO of Asian insurer AIA, which Prudential attempted to buy. He is credited with leading AIA through the financial crisis and restructuring it in preparation for an IPO. He left the company when its parent AIG initially rejected the IPO concept (though, ultimately, AIA did float).
Aviva has stressed his restructuring credentials, but it is significant that Wilson has spent much of his career in Asia. The "first stage" of Aviva's strategy is clearly to retrench, build its capital buffers and shed operational costs, but I would not be surprised if Wilson's ambition is not subsequently to take the company into Asia.
That has been highly successful for Prudential, albeit that that company has long-standing roots in that continent. Asia offers not just attractive demographics, but an undeveloped and unsophisticated insurance sector.
The sale of the U.S. business should remove any immediate threat to Aviva's dividend. If the company generates enough capital to restructure without having to tap shareholders, then its shares ought to enjoy an upward trajectory.
But it is not a share without risk. All financial stocks are vulnerable to the menace of the eurozone, and none more so than Aviva, which has substantial European operations and investments. Its shares are sensitive to risk-on/risk-off investor sentiment, and any serious disruption in the eurozone would quickly contaminate the banking and financial sector, with Aviva being badly hit.
So enjoy Aviva's generous yield by all means, but be aware of the risks. If you're looking for high-income stocks but don't want to take on more eurozone exposure, then one very good source of ideas is to look where high-yield specialist stock-picker Neil Woodford is investing.
Woodford runs Invesco Perpetual's High Income and Income funds, which are built on large, established companies that generate healthy and growing cash payouts. Remarkably, he enjoyed a nine-year run from 2000 to 2008, when he consistently beat the FTSE All-Share index. And in 2011, his funds returned double the index.
You can find out more about how Woodford goes about picking stocks in this special report from the Motley Fool: "8 Shares Held by Britain's Super Investor." It's free, and you can download it by clicking here.