7.6% dividend yield! Is Aviva’s share price the best FTSE 100 bargain?

Aviva shares offer great value when it comes to both growth and income. Could the business be one of the best FTSE value stocks to buy?

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The Aviva (LSE:AV.) share price has underperformed the broader FTSE 100 in 2023. It has risen just 3% since the start of the year while the broader blue-chip index has jumped 6%.

I think that the market could be undervaluing Aviva shares right now. Okay, the financial services giant rose in price after it released excellent full-year results last week. Yet on paper it still offers exceptional all-round value.

The business trades on a price-to-earnings (P/E) ratio of 8.9 times for 2023. It also carries a FTSE-beating 7.6% dividend yield, more than double the index average.

Here are three reasons why I’d consider adding the insurer to my own portfolio today.

#1: It’s swimming in cash

A cash-flush balance sheet gives a company funds to invest for growth. It can also allow them to return lots of cash to shareholders.

Aviva’s robust finances are what have made it a popular income share for many years. And encouragingly it continues to hold cash comfortably above what regulators require. Its Solvency II capital ratio came in at 212% at the end of 2022.

Accordingly City analysts are expecting dividends to keep growing over the short term, meaning Aviva’s yield of 7.6% this year rises to 7.7% for 2024.

It also means the company continues to embark on huge share repurchase programmes. This week it announced plans to buy back another £300m worth of stock, taking total repurchases since 2021 to above £5bn.

#2: Digital drive

Its important that companies invest wisely to adapt their operations as digital adoption among consumers increases. In this respect I think Aviva is certainly outperforming most of its rivals, as last week’s results showed.

The firm has estimated that “improvements we made to the MyAviva pension digital journey have resulted in over £600m of additional flows in 2022.” Mobile engagement is an integral part of its digitalisation strategy and enhancements to the MyAviva app are paying off handsomely.

More than three-quarters of its customers use its digital channels. And as its three-year digitalisation and automation programme launched last year rolls on the business will be hoping online engagement will keep rising. The scheme also has the potential to drive down costs.

#3: Demographic opportunities

The UK financial services market is packed. And as a consequence Aviva has to paddle extremely hard to keep growing business and to generate decent profit margins.

This represents a major threat to the business. Yet despite this obstacle, I feel it still has the opportunity to deliver exceptional long-term profits growth. Aviva grew its customer base to 18.7m last year, and it should keep rising as Britain’s ageing population drives demand for its pensions, annuities and other retirement products.

There are several top stocks vying for the title of best FTSE 100 value stock. I believe Aviva’s low share price makes it one of them.

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.

Royston Wild 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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