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

Paul Summers takes a closer look at the great income stream being offered by FTSE 100 (INDEXFTSE:UKX) stock Aviva plc (LON:AV).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

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.  

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Investing Articles

Here’s how I’d aim for a ton of passive income from £20k in an ISA

To get the best passive income from an ISA, I think we need to balance risk with the potential rewards.…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

2 FTSE 100 stocks I’d buy as the blue-chip index hits record highs

This Fool takes a look at a pair of quality FTSE 100 stocks that appear well-positioned for future gains, despite…

Read more »

Satellite on planet background
Small-Cap Shares

Here’s why AIM stock Filtronic is up 44% today

The share price of AIM stock Filtronic has surged on the back of some big news in relation to its…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

At a record high, there can still be bargain FTSE 100 shares to buy!

The FTSE 100 closed at a new all-time high this week. Our writer explains why there might still be bargain…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

After profits plunge 28%, should investors consider buying Lloyds shares?

Lloyds has seen its shares wobble following the release of its latest results. But is this a chance for investors…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

Something’s changed in a good way for Reckitt in Q1, and the share price may be about to take off

With the Reckitt share price near 4,475p, is this a no-brainer stock? This long-time Fool takes a closer look at…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

This new boost in assets might just get the abrdn share price moving again

The abrdn share price has lost half its value in the past five years. But with investor confidence returning, are…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

As revenues rise 8%, is the Croda International share price set to bounce back?

The latest update from Croda International indicates that sales are starting to recover from the end of 2023, so is…

Read more »