Everybody is obsessing about UK house prices, and thats hardly surprising, with prices soaring 10.4% in the last year and 19.3% in London, according to the Office for National Statistics (ONS). But many people are also suspicious, because they dont believe this breakneck growth is either healthy, or sustainable.
Property hasnt been the only roaring investment of the last five years, stock markets have also delivered plentiful growth. Shares also have major advantages over property, as you can invest with just a few hundred pounds, rather than hundreds of thousands, and sell up in a matter of seconds, rather than months.
Some people wrongly think that property is a one-way bet. Nobody would make the same mistake about Aviva.
This is a company in recovery mode. Two years ago, it suffered a 10% drop in profits, following a costly 876 million write-down on its US business, expensive UK weather-related insurance claims, and adverse foreign exchange movements. Shortly after, the only thing shareholders did like about Aviva, its 8% yield, was slashed by roughly half.
Over the last five years, Aviva has posted fairly modest share price growth of just 30%. It trails the FTSE 100, which grew a steady 41% over the same period.
Crucially, as far as this article is concerned, it also trailed the UK housing market. Over five years, the average UK property has climbedfrom 194,000 to 262,000, according to ONS figures, a rise of 34%.
Thats 4% more than Aviva. Or is it?
The balance shifts firmly in favour of Aviva once you include its dividends. This stock has delivered an average payout of around 5% a year over the period, or 28% over five years, if reinvested for income.
Add that to the share price growth and you get a total return of 57%, easily beating house prices.
Over the last couple of years, Aviva has done even better. It is up 60% over two years, and 32% over one year, against growth of 12% and 10.3% respectively for the average UK property.
And thats before you factor in itsdividends.
Its natural that we all focus so obsessively on house prices, given that our home is our most valuable asset, and housing costs have such a disproportionate impact on everyday life, as well as the wider economy.
But that shouldnt blind you to the fact that solid FTSE 100 companies such as Aviva can give you a better return, a regular income, and far greater flexibility.
Plus you dont have to borrow hundreds of thousands of pounds to buy them.
Get On The Stock Market Ladder
Of course, every stock behaves differently. Aviva has been helped by the fact it was an undervalued turnaround company, that has managed to put its house in order in the last couple of years.
Today, it trades at a forecast valuation of 11.1 times earnings for December 2014, which suggests it still has further scope for growth. With forecast earnings per share growth of a whopping 114% this year, the future looks promising.
If youfeel youre missing out on the property boom, dont panic, there are easier ways to invest in the next leg of the UK recovery.
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Harvey Jonesholds shares in Aviva. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.