1 dirt-cheap FTSE 100 stock to buy today!

There is a lot of value in the UK market today. Here’s a cheap FTSE 100 stock I think offers great value, with a punchy dividend yield to match.

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I’m looking for stocks in the FTSE 100 with attractive valuations for my portfolio this week. I think Aviva (LSE: AV) is a dirt-cheap stock that also offers me a 5.5% dividend yield.

A business in transition  

Aviva is a company that I’m sure many people will already know. With a history beginning as far back as the 17th century, today it is best known for its insurance businesses, and savings and retirement services.

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But Aviva is a company in transition. It is in the process of selling its international businesses so that it can focus on its core markets in the UK, Ireland and Canada. Aviva has a leading position in these markets, and they offer the best opportunities for growth according to the company.

What’s more, Aviva appointed Amanda Blanc as the new CEO in July last year. Blanc has leading executive experience at Zurich and AXA, so is well equipped to take the top role at Aviva.

By March following Blanc’s appointment, eight non-core businesses had already been sold for £7.5bn in cash. What’s even better for shareholders is that Blanc stated: “We have made significant progress with our debt reduction plan and in due course we will make a substantial return of capital to shareholders.”

I think this shows the determination of Aviva to deliver on its new strategic direction. Analysts are now predicting a substantial buyback of shares in the first quarter of 2022.

Financials and valuation   

With a business in such a big transition, looking at historical financial numbers doesn’t help me much. Instead, I’m going to use forecasts for this financial year to review Aviva’s potential. However, revenue is expected to dip this year by almost 8%, and earnings by over 10%. For the next financial year in 2022, earnings are again forecast to decline by almost 5%. There is a risk that Aviva’s plans to grow in its core markets fails and the business stagnates.

But as the company is in such a big transition, I think it’s understandable that forecasts are in decline given that Aviva is selling its international businesses.

The stock’s valuation is very attractive, though. On a forward price-to-earnings ratio, Aviva’s shares are valued at a lowly 8.4. The dividend yield is also punchy at a forward 5.5%!

Once the balance sheet is reinforced with the cash generated from the sales of the non-core businesses, there should be a significant return of capital to shareholders, including a boosted dividend and share buybacks.

Final thoughts

I really like the new strategy playing out at Aviva. The new CEO is experienced and has executed extremely well since taking over. Once the non-core businesses are sold, I’m also expecting the UK, Irish and Canadian markets to grow well. With significant capital returns to shareholders to come in 2022, it’s a buy for my current portfolio.

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Dan Appleby owns shares of Aviva. 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.

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 considered, so you should consider taking independent financial advice.

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