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A cheap FTSE 100 dividend stock I’d buy for my ISA

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Finding cheap dividend stocks in the FTSE 100 isn’t too arduous a task. One that I’d be inclined to give priority access to my ISA, however, is insurer and retirement specialist Aviva (LSE: AV). Its share price was on the front foot this morning as the company reported a solid 17% jump in operating profit. 

“Best-ever” sales

The figure of £725m may have been below the predicted £781m but this does not appear to be bothering the market much. The FTSE 100 stock is up well over 4% as I type.

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I suspect this is partly due to Aviva logging some of its “best-ever” figures. UK general insurance sales hit their highest level in 10 years. Net inflows in its Savings and Retirement division also jumped 24% to £5.2bn.

Elsewhere, there was evidence of Aviva continuing to become a leaner beast. In addition to selling off many of its businesses as part of its transformation plan, the firm has been cutting costs. These fell 2% over the period with the company on track to meet its £300m savings target in 2022.

All told, I suspect existing holders will be pretty satisfied with today’s news. So, what does the future hold?

Where next for the Aviva share price?

Taking into account today’s rise, the Aviva share price has now climbed 30% in 2021. That’s a great gain for existing owners. However, many other companies in the FTSE 100 have seen similar increases. What’s more, the stock still changes hands for less than it did before the pandemic took hold.

I suspect we’ll see this boundary breached in short order. Aviva’s outlook feels pretty rosy, at least based on what the company is telling us.  

Unsurprisingly, the £16bn cap predicts its Savings and Retirement area will continue to grow. In insurance, the company also has “excellent opportunities for growth“.

This is not to say there aren’t risks. Lower prices in some areas (motor insurance, for instance) will “increasingly impact earnings“, Aviva said. I suspect a slowdown in UK economic growth could also impact progress.

Dividend growth

While further good trading will do the Aviva share price no harm, I suspect there are a couple of other reasons why positive sentiment around the stock should grow.

Based on analyst projections, the FTSE 100 company is down to hand out 21.9p per share for the whole year. That would equate to a 5.2% yield at the current share price. Although I could get a higher return elsewhere in the index, this payout is likely to be covered well over twice by profits. This means there’s no danger of a dividend cut on the horizon. The yield is also far higher than the FTSE 100 as a whole (3.2%). 

The good news continues. In today’s statement, CEO Amanda Blanc said Aviva would also be returning “at least” £4bn to owners by the end of the first half of 2022. This will begin with a share buyback of up to £750m. A buyback is usually good news for the share price since it increases the ownership stakes of the remaining holders.

Cheap FTSE 100 income

Despite the recent, sustained rise to the Aviva share price, the stock still trades on just 8 times forecast earnings. That still looks reasonable to me. Taking this and all of today’s news into account, I’d be comfortable snapping up this stock today as part of an income-focused ISA.  

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Paul Summers 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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