Does the cheap Aviva share price make it today’s best FTSE 100 buy?

The Aviva share price slumped in early 2023, and there’s no sign of it coming back yet. Could this be the year’s best time to buy?

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The Aviva (LSE: AV.) share price is only just off its 52-week lows.

I own some shares, so maybe I’m biased. But I say the market has got this one completely wrong. And if I’m right, I think it could be the best contrarian buy in the FTSE 100 right now.

Or maybe even just the best buy, period. Just look at what’s happened to the Aviva share price in 2023…

52-week low

The stock recovered well from the pandemic crash, at first. But we’ve seen a fresh slide in 2023, with the price now barely above that 52-week low. The Aviva share price is now down 40% in five years.

That puts Aviva on a whopping 8.6% dividend yield. If investors don’t have confidence in the dividend, that might explain the share price fall.

But with H1 results, CEO Amanda Blanc said: “In the first half of 2023 we grew sales, operating profit and dividends for our shareholders.

The interim dividend is up 8%, which is just ahead of inflation. In 2023, I rate that as a good result, and it adds credence to the likelihood of that 8.6% happening.

Why so glum?

So why is the Aviva share price so stubbornly low? Well, the big fall earlier in the year came at a time when the financial world was rocked by some US financial failures, including the collapse of Silicon Valley Bank.

Fears for exposure to bond losses raised the spectre of weak liquidity across the insurance sector. When that came in a year of super-high inflation and interest rates, I can see why the big institutions might choose to steer clear.

But Aviva’s liquidity at the halfway stage looked fine. A key measure, the firm’s Solvency II shareholder cover ratio, did decline a little, by 10 points to 202%. But associated Solvency II own funds generation leapt by 26%.

The future

Now the analysts have had a bit of time to digest these earlier financial shenanigans, and Aviva’s H1 performance, what do they expect to happen?

The consensus suggests the firm’s operating margin should remain stable at around 6%, with earnings per share growing 60% between 2023 and 2025.

The tipsters reckon the dividend should keep on up too, to reach a 10% yield by 2025. We’d be looking at cover by earnings of 1.26 times, if they’re right.

Risks in 2023

I really do think Aviva shares are too cheap now, and I hope they’ll stay that way until I have the cash to buy some more.

But I fear the price could fall further before things improve. We still see great uncertainty in global financial markets, and that can hit a cyclical sector like insurance.

So I’d say there could easily be more share price falls to come. But for me, planning to hold for at least the next 10 years, that means more buying opportunities.

And I hope there will be years more of those lovely fat dividends to add to my pension pot.

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.

Alan Oscroft has positions in Aviva Plc. 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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