Yielding 7.4%, could Aviva shares be a great buy for my ISA?

Aviva shares currently have a low valuation and a high dividend yield. Should Edward Sheldon buy some for his investment portfolio?

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Image source: Aviva plc

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Aviva (LSE:AV.) shares are a popular investment – particularly with older investors – and it’s easy to see why. This is a blue-chip company that has been around for ages, and it pays a decent dividend.

Should I buy shares in the insurance company for my ISA portfolio? Let’s take a look at the investment case.

Aviva’s attractions

Aviva shares definitely have some attractions today.

For starters, the insurer is now in much better shape than it was a few years ago. Thanks to a recent transformation programme led by CEO Amanda Blanc, the business is more streamlined, efficient, and profitable.

It’s also generating solid growth. For example, in November, the company advised that it was expecting operating profit growth of 5-7% for 2023 (2023 results will be posted on 7 March).

Secondly, there’s the big dividend here. In November, the company advised that it is planning to pay out total dividends of 33.4p per share for 2023. At today’s share price, that translates to a yield of about 7.4%, which is decent.

The company has also said that going forward, it anticipates further regular and sustainable returns of surplus capital.

As for the valuation, it looks very reasonable. At present, Aviva has a price-to-earnings (P/E) ratio of about 9.8. That’s an undemanding earnings multiple.

The negatives

While there’s a lot to like about the company today, however, there are also plenty of risks from an investment perspective.

I noted above that Aviva is now a more streamlined business. Today, it only operates in the UK, Ireland, and Canada. This more narrow approach could potentially backfire on the company. Ultimately, it is now reliant on just a few key markets, all of which are quite mature.

Aviva also operates in a fiercely competitive industry. And to my mind, it doesn’t have a clear competitive advantage over its rivals. From my experience in the financial services industry, the company is generally not viewed as an industry leader.

Another big issue for me is that share price gains can be hard to come by here. 10 years ago, the Aviva share price was around 460p. Today, it is near 450p. That’s disappointing. When I invest in shares, I like a mix of capital growth and dividends.

Now, some brokers do have higher price targets for Aviva. For example, JP Morgan currently has a target price of 575p. That could be optimistic though, given the stock’s history.

My move now

Weighing everything up, Aviva shares are not a buy for me personally today.

I do think they could provide solid returns from here.

However, considering that my main goal is to generate long-term capital growth (and not dividend income), I think there are better stocks to buy for my portfolio right now.

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.

Edward Sheldon 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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