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I reckon the Aviva share price is too cheap to resist. I’d buy it in an ISA today

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The Aviva (LSE: AV) share price is climbing again after years in the doldrums, but still trades at a temptingly-low valuation.

I’ve been a fan of the FTSE 100-listed insurance company for years, and it’s high on my list of companies to buy for this year’s Stocks and Shares ISA allowance. There’s a tempting opportunity here, but also a few risks.

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My biggest concern is that the Aviva share price has gone nowhere in years. A decade ago, it traded at 450p. Right now, it stands 12% lower at 396p. Investors have still made good money over that period, due to Aviva’s generous dividends, but the share price is an undoubted disappointment. It looks a flop compared to rival FTSE 100 insurer Legal & General Group, which also pays generous dividends but whose share price is up 156% over 10 years.

Value trip or opportunity?

My longstanding worry is that Aviva is a classic value trap. The stock looks cheap, but it’s because management has failed to unleash its potential.

But the Aviva share price looks like it’s finally coming alive under new CEO Amanda Blanc. It’s up 37% over six months, boosted by last week’s results which showed full-year underlying operating profit of £3.2bn. That’s broadly in line with last year, despite the pandemic, which hit its core UK, Ireland and Canada businesses.

Blanc is pulling out of non-core markets, including Singapore, Vietnam and Poland. Last week, we learned that Aviva Italy is being sold for €873m. When added to the €3.2bn pocketed from selling Aviva France, the group has enjoyed a real liquidity and cash boost. It now boasts £3bn of excess capital and £3.9bn in cash.

I’m tempted by the Aviva share price

Analysts hope its cash pile could make its way to investors, in the shape of share buybacks. It could also help Aviva expand its bulk annuities business.

The good news is that dividends are restored after last year’s Covid cut. The full-year 21p is a step up from the 15.5p paid in 2019, but well down on the 30p paid in 2018. Management is looking to increase it every year, by low- to mid-single digits. The Aviva share price already offers a forward yield of 5.8% right now, with solid cover of 2.4. 

Despite the share price rebound, I think there’s still a buying opportunity here. Aviva trades at just 7.2 times forward earnings. I’d buy for the long term, as part of my retirement portfolio, and reinvest all my dividends for growth until I need to draw the income.

Top ISA dividend stock

Trimmed-down, Aviva can now focus on what it does best, although there’s still the question of whether it should separate its asset management and general insurance arms. Stock market volatility remains a risk, as does the uncertain post-Covid recovery.

Today’s low Aviva share price makes it one of the most tempting dividend growth stocks on the FTSE 100 for me.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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