Berenberg recently started coverage of Aviva (LSE: AV.) with a share price target of 800p, implying roughly 28% upside from current levels.
More interesting though, is its reasoning. The investment bank argues that an investment today could effectively be ‘paid back’ in under a decade through dividends and buybacks alone.
That sounds bold, so I decided to take a closer look.
What’s being forecast?
Berenberg’s case rests on three moving parts:
- First, it expects Aviva’s earnings per share (EPS) to grow at about 6.5% a year between 2026 and 2028.
- Second, it models a total cash yield of 9% from 2027 profits — roughly 7% from dividends and 2% from share buybacks.
- Third, it sees scope for the share price itself to move up towards 800p as the market prices in that cash‑return profile.
Not everyone’s quite so bullish. Morgan Stanley recently cut its target from 690p to 670p and moved the stock to Equal Weight. It argues that the risk/reward now looks more balanced and that execution on new targets will be key.
So there’s a clear spread of views even among supporters.
Under the bonnet, Aviva’s 2025 results give some backing to the more optimistic stance. Operating profit rose 25% to £2.2bn, beating its long‑stated £2bn goal a year early, and the total dividend was lifted 10% to 39.3p alongside a new £350m buyback.
Management’s now targeting 11% annualised EPS growth through 2028.
Testing the hypothesis
To test the theory, consider the following three scenarios based on a £1,000 investment:
| Scenario (illustrative) | Assumption | Estimated 10 year returns* |
|---|---|---|
| A – Flat income | 7% yield, no growth | £700 |
| B – Berenberg case | 7% yield, growing 6.5% a year | £945 |
| C – Total cash yield | 9% yield (dividends + buybacks), no growth | £900 |
*Ignoring tax and reinvestment; rounded from simple compounding.
As Berenberg puts it, a 7% dividend growing at 6.5% “would imply a 50% cumulative cash return after five years and over 100% by the end of the 10th year”.
On that logic, most or all of your original stake could be recovered in cash over a decade, with whatever the share price is then sitting on top.
What could go wrong?
General insurance profits are always at risk from large catastrophe losses, from storms and floods to other extreme events. But an additional risk is execution of Aviva’s agreed £3.7bn acquisition of Direct Line, which has already drawn scrutiny from the Competition and Markets Authority.
If margins slip, buybacks are the easiest lever to pull, and that would dent the 9% cash‑yield story. It’s also worth stressing that any 10‑year projection is just that: a model, not a promise.
The bottom line
For me, the heart of the Aviva investment case has shifted. No longer an undervalued play with growth potential, the new story is a potentially long, steady stream of shareholder returns.
The current yield, the 10% dividend hike, and the new £350m buyback suggest management is serious about that.
If the income stream even gets close to today’s expectations, future price gains are just an extra bonus.
For patient investors planning for retirement, that paints a very compelling picture of Aviva as an income stock to consider. Yes, there’s some execution and regulatory risks – but those projected cash‑flow assumptions are hard to ignore.
Should you invest £5,000 in Aviva Plc right now?
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Mark Hartley owns shares in Aviva.
