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I think the Aviva share price’s 8% yield is a Footsie 100 bargain

At the beginning of January, I picked out BP as a stock that I believe has some of the best income credentials in the FTSE 100. I even went so far as to label the company a “better income buy than any other blue-chip.

I still think this is the case. I also believe investors are spoilt for choice right now when it comes to finding blue-chip income. 

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The Aviva (LSE: AV) share price is a great example. Shares in this leading FTSE 100 long-term savings provider have recently fallen to one of their lowest levels since the financial crisis. That’s sent the dividend yield skyrocketing to an impressive 7.6% and, based on City estimates, the dividend yield is expected to hit 8.4% next year. 

Generally speaking, when a company’s dividend yield rises above the market average (which in this case is 4.7%) it’s a telltale sign that investors don’t believe the distribution is sustainable. However, I don’t think this is the case with Aviva. Today, I’m going to explain why I hold this opinion. 

Unloved, undervalued 

Investors have been relentless sellers of the Aviva share price since September for various reasons, including Brexit, the spectre of which seems to be haunting all UK-based equities at the moment. 

Although Aviva can’t do much about Brexit, it does have its own problems it can sort out. These include breathing new life back into the business and settling management turmoil that has left it without a chief executive for several months. 

Indeed, former CEO Mark Wilson was kicked out in October after falling out with the group’s board on the topic of strategy. Shareholders are still awaiting a replacement to fill his shoes. Andy Briggs, the head of Aviva’s UK business, and Maurice Tulloch, the head of the firm’s international operations, have been put forward as two possible candidates. 

It is quite shocking that Aviva, one of the UK’s largest and most important companies, has been without a CEO for so long. The rest of the C-suite has remained with the business, so it’s not leaderless. But without a CEO, the company lacks direction.

With this being the case, I think that when a new CEO does take the helm, the Aviva share price will regain some lost ground, although I also think gains will be limited until the new incumbent maps out plans for the business going forward.

Rock solid income 

For income seekers, the good news is that business-as-usual suggests Aviva’s dividend yield is safe for the time being. What’s more, it’s unlikely that a new CEO will decide to slash the distribution because Aviva is cash rich and has plenty of additional resources to deploy across the rest of the business to fund growth initiatives. At the end of June 2018, the company reported a solvency II capital surplus of £11bn, which gives more than enough fiscal headroom. 

So overall, management upheaval has weighed on the Aviva share price over the past six months. But I think when a new CEO is appointed, and a new group strategy is laid out, investors will be quick to return. 

In the meantime, the company’s near-8% dividend yield looks safe and is, in my opinion, one of the best yields available in FTSE 100 today.

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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.