When scouring the FTSE 100 for opportunities, Aviva (LSE: AV) shares never fail to jump out at me. But does the insurance giant offer the most compelling value of all the stocks in the index?
Cheap stock
Let’s start with the price tag.
I can currently take a stake in this company for the equivalent of 11 times FY24 earnings. That’s certainly cheaper than the long-term average for FTSE 100 stocks.
On the other hand, it isn’t quite so compelling compared to some of Aviva’s sector peers. Shares in Prudential, for example, trade at a little under nine times FY24 earnings.
Then again, it’s important to look beyond a single number before investing any money.
Ahead of expectations
Based on recent half-year results, Aviva looks to be in good form.
Earlier in the month, it revealed a better-than-expected 14% rise in operating profit. This came in at £875m compared to £765m last year thanks to a rise in general insurance premiums in Britain and Ireland. The market was anticipating around £830m.
All told, the company had nearly £400bn in assets under management at the end of June. It also said that it was confident of meeting its full-year targets.
Don’t forget the dividends!
Its income credentials are worth mentioning too.
Management elected to raise the interim payout to 11.9p per share. That’s a 7% jump on the amount handed back to shareholders last year.
Analysts have the total dividend for 2024 at 35.4p per share. This equates to a dividend yield of 7% — double the yield of the FTSE 100 as a whole.
This not only makes Aviva one of the biggest payers in the index but a real dividend champion across the entire UK stock market.
Consider the risks
So, we’ve got a (fairly) cheap stock and a lovely passive income stream. What could go wrong?
Well, this is investing. A bumpy ride should always be expected.
Aviva has and will continue to operate within thoroughly competitive markets exposed to the occasional catastrophic event. Perhaps this is why there was no fanfare when those aforementioned results were announced. Or perhaps it’s because the stock had been thrashing the FTSE 100 in 2024 and some of the good news was already in the price.
It’s also worth remembering that those dividends aren’t guaranteed. Indeed, Aviva has a mixed track record on this front. Years of increases have been cancelled out by sudden cuts, usually the result of a general economic wobble. The most recent example was during the pandemic.
On a positive note, being such a cash-generative company has meant these interruptions have been fairly brief.
A great option
Whether this is the best value stock in the FTSE 100 is open to debate and not helped by the fact that the index is composed of radically different businesses. It’s a bit unfair to compare apples with oranges.
Taking into account all of the above, however, I reckon there are a lot worse options for me than investing in Aviva shares today if I had the spare cash.
CEO Amanda Blanc has made a good job of cutting costs and the sale of more non-core assets going forward, combined with that positive earnings outlook, suggests there could be more share price rises ahead.
