Aviva shares yield 7% and look like great value. I’d buy them today

Aviva’s been soaring in the last 12 months, but this Fool would still be happy to add the stock to his portfolio today.

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Now looks like a terrific time to go shopping for FTSE 100 shares and Aviva (LSE: AV.) seems especially tempting.

We’ve seen the insurance stalwart outpace the Footsie year to date, rising 10.6% compared to 7.2%. It further trumps the lead index over a 12-month and five-year timeframe too, up 17.6% and 16.4% compared to 8.6% and 12.9% respectively.

That could leave some investors feeling like they’ve missed out. The last thing I want to do is invest when a stock’s peaking, only for it to be pulled back. Luckily, I don’t see that happening.

Undervalued?

Its shares trade on 12.7 times earnings. That’s just above the FTSE 100 average, so it may not jump out as a bargain. However, it’s cheaper than it has been, with its historical average being 14.

While broker forecasts aren’t always reliable, the 12-month target price for Aviva is £5.17. That’s an 8.1% premium from its current price and highlights that the stock could be great value today.

Passive income

There’s also the potential to make some juicy passive income with Aviva. The stock yields 7%, way above the Footsie average of 3.6%.

That means a £10,000 investment in the stock today would pay me £700 a year in dividends. If I reinvested those dividends and bided my time, let’s say over 20 years, by then I’d be earning £2,723 a year in interest. I’d have a pot worth £40,387. That’s assuming its yield remained the same during that time, which isn’t necessarily guaranteed as dividends can be cut or, hopefully, rise.

That’s not a bad potential return. In fact, there’s only a handful of stocks on the Footsie that offer a higher payout than Aviva. Its management also seems keen to reward shareholders. I like to see that.

Following a strong 2023 not only did it announce a fresh £300m share buyback scheme but it further upgraded its dividend guidance. It now expects its payout to rise by mid-single digits. For potential investors, that’s enticing.

A strong year

Last year proved to be prosperous for the business. Operating profit rose 9% to £1.47bn while it made good progress with its capital-light businesses, which makes up over half of its portfolio. For three years in a row now Aviva has grown sales, operating profit, and its dividend. The business is gaining some real post-pandemic momentum.

The challenges

Of course, there are challenges I see. The progress made has been aided by its streamlining mission but that comes with threats. By reducing its geographic footprint to focus on its core markets it makes itself reliant on these. Any blips in them could spell trouble for the stock.

We’re not out of the woods yet and economic uncertainty surrounding issues such as interest rate cuts also pose a threat to the Aviva share price.

An exciting future

But Aviva seems to be turning a page under CEO Amanda Blanc. She’s made solid strides since taking over in 2020. I reckon it could be an exciting few years ahead for the business.

At its current price, and with its meaty yield, Aviva certainly looks like a stock that’s worth considering buying today. If I had the cash, I’d be keen to add it to my portfolio.

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.

Charlie Keough 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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