The Motley Fool

Have £2k to invest? Why I think Aviva could be the best place to invest

Plenty of companies in the FTSE 100 look unloved right now, with Aviva (LSE: AV) up there as one of the most hated. Year-to-date shares in this financial services giant have collapsed by nearly 25%, excluding dividends, underperforming the FTSE 100 by around 14%. 

Following this decline, Aviva’s dividend yield has spiked to 8.7%, putting the company in the top 10 highest yielding stocks in the FTSE 100 (it’s number eight). If you have some money to invest, I think it’s worth taking advantage of the opportunity. Here’s why. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Oversold 

Before I get into what I like about Aviva, I want to take a look at the reasons behind the stock’s decline over the past few weeks. 

It seems as if there are three main reasons why investors have deserted the firm. Firstly, Brexit uncertainty, which is weighing on all FTSE stocks not just Aviva’s, and the company can’t do much about this.

Second, CEO Mark Wilson, who has steered the business since 2013, recently announced that he’s stepping down. Analysts were somewhat surprised by this announcement as Wilson has done a fantastic job of turning Aviva around and re-building the business after the financial crisis.

And lastly, Aviva has been hit by Government plans to tighten regulation of the equity release lifetime mortgages (LTM) market, in which Aviva is the largest player. 

On this last point, a few days ago the Prudential Regulation Authority (PRA) published more information on the proposed changes for LTM providers. The guidance was less demanding than first feared, which is good news for Aviva. 

Management changes

So, changes to LTM regulation might not be as bad as feared, and the company can’t do much about Brexit, but should we be worried about Wilson’s departure? 

I think his decision to step down is a signal to the market he believes his job is done. Aviva is in a much better position than when he took over.

The company has plenty of excess capital, which it’s using to pay down expensive debt, buy back shares, and is planning to spend some of these funds on acquisitions to help reinforce its position in the insurance market. Put simply, I don’t think Wilson’s decision to step down is a red flag for investors. 

Time to buy? 

After considering all of the above, I’m of the decision that shares in Aviva are a good deal today. Not only does the stock support a dividend yield of 8.7%, but it’s also changing hands at a highly attractive valuation of just 6.7 times forward earnings. 

In my view, this multiple is too cheap to pass up. The rest of the insurance industry is trading at an average P/E of 10, indicating that Aviva is undervalued by around 49%. This potential for capital gains, plus the dividend yield of 8.7%, leads me to conclude that Aviva could be a great addition to any portfolio. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Rupert Hargreaves owns no share 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.