I’d buy this FTSE 100 stock with £1,000 today

Aviva is a FTSE 100 stock that is undergoing a transformation. Here’s my take on its recent half-year results and why I’d buy.

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If I had £1,000 to invest today, I’d buy FTSE 100 stock, Aviva (LSE: AV). Some may think it’s a boring business, but it has a dividend yield of over 6% and is dirt-cheap right now. It’s trading on a price-to-earnings (P/E) ratio of 8x. So I can’t complain that I’d be overpaying.

I’ve been bullish on the company before and even suggested it as my top pick for August. The shares rose over 3% yesterday after it released its interim results. I think this is worth taking a closer look.

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The transformation

Aviva is undergoing a transformation. I’ve previously commented on how it’s making disposals to focus on its core businesses. Well, in its half-year results it said that it has made eight sales, which have raised £7.5bn. It also confirmed that the divestment programme is expected to be complete by the end of 2021.

For me, it’s encouraging to see that it’s downsizing and becoming more focused. By growing its core divisions it’s likely to improve profitability. In my view, a business with a lot of divisions means that it’s difficult to keep track of what’s going on. But I’m glad to see that the new CEO Amanda Blanc is tackling this.

Shareholders

Earlier this year it decided to keep shareholders happy by announcing that it was making a substantial capital return. The general insurer provided the details in its interim update.

It has said that it intends to return at least £4bn to investors by the end of the first half of 2022. And it’s going to start with a share buyback of up to £750m. Further details of the remaining capital return will be given in due course.

It’s also going to use the money from the disposals to pay down its debt. In my opinion, this is the right thing to do. It’s encouraging to see that it’s rewarding its shareholders but also improving the balance sheet. This should place the FTSE 100 firm in a good financial position going forwards.

Profits

Judging by the share price rise yesterday, investors seem to have overlooked the fact that Aviva booked an IFRS loss in the six months of £198m compared to a profit of £874m last year. But the company put this down to non-operating items including the loss on the disposal of its French business.

But what’s encouraging it that its operating profit from its continuing operations increased by 17% to £725m. So at least the businesses that are expected to remain part of the company continue to be profitable.

Outlook

In terms of the outlook, Aviva is sticking to its strategy. It’s continuing to set up the business to grow in its core markets of the UK, Ireland and Canada. The company has said that it remains on track to deliver £300m of cost savings in 2022. This should improve profitability going forwards.

Risks

The FTSE 100 stock does come with risks. There’s no guarantee that it will meet the cost-reduction goal. If it fails to meet the target, it could hurt the shares. The remaining details of the capital return when released may not satisfy investors, which could also impact the stock.

But I think Aviva is taking the right steps and I’d buy the shares with £1,000 today.

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Nadia Yaqub has no position in any of the shares mentioned. 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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