Aviva (LSE:AV.) shares have climbed 78.6% in the past five years and now sit near their highest level in 19 years. The last time the price traded above 700p was back in October 2007, before the financial crisis wiped out trillions in global wealth.
On top of that, there’s been growing chatter about a potential stock market crash. Analysts have highlighted several factors that typically precede such an event, from stretched valuations to geopolitical tensions.
So is now a good time to consider trimming my Aviva position, or doubling down and buying more?
Strong results, but is the price too rich?
Recent news around Aviva has been largely positive. The insurer reported first-half 2026 operating profit up 24% to £1.32bn, driven by strong performance in UK general insurance and acquisitions. Revenue in the same period rose 6% to £205.2m on an adjusted basis, though group premiums grew faster thanks to the successful integration of Direct Line.
Yet the valuation looks stretched, with a price-to-earnings (P/E) ratio well above its five-year average. That prices in a lot of future good news and leaves little room for error if claims inflation picks up or investment returns disappoint.
The wider UK insurance sector faces its own challenges. Competitors like Legal & General and Standard Life are fighting for market share in annuities and protection, while motor insurers grapple with rising repair costs and fraud.
Could rivals threaten Aviva’s progress if the economic cycle turns?
The dividend: reliable income or hidden risk?
For income investors, Aviva’s 5.64% dividend yield is the main attraction. The company has raised its payout for six consecutive years since 2019, building a solid track record.
But history tells a more cautionary tale. The insurer cut its dividend in 2008 after five years of hikes, then again in 2019 following another five-year run of increases. The pattern suggests management prioritises capital strength over maintaining payouts through every cycle.
Today’s solvency cover ratio of 176% provides a comfortable buffer, and the interim dividend rose 7% to 14p per share in H1 2026. It’s not the most impressive dividend-payer on the FTSE 100 but it could play a meaningful role in a diversified portfolio.
Still, it’s worth asking how sustainable the dividend is if an overbought valuation leads to slower profit growth? That’s a critical question for potential buyers.
So what’s the verdict?
Aviva remains a compelling holding for existing shareholders who bought at lower prices. The combination of operating momentum, capital strength, and a double-digit yield gives me no reason to panic-sell today.
However, it’s fair to say that the risk/reward looks less attractive now. With the shares near 19-year highs and the P/E ratio elevated, much of the turnaround story is already priced in. Based on the wider UK economic picture, it would be understandable for an investor to consider the opportunity of locking in gains ahead a potential downturn.
For potential investors, the question is: are you looking to allocate capital to compound growth of target steady income? Aviva may deliver both, but the current price doesn’t favour an agressively growth-focused strategy. For those watching the stock, waiting for a pullback seems sensible. At the same time, for investors working on pound cost averging strategy, it’s still worth considering as a long-term holding.
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Mark Hartley owns shares in Aviva, Legal & General and Standard Life.
This story originally appeared on Motley Fool
