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The Aviva share price may be a great buy for this year’s stocks and shares ISA

Are you looking for an established FTSE 100 company that pays an attractive dividend for a bargain valuation? Insurance giant Aviva (LSE: AV) fits both criteria nicely.

I’ve been a fan of the stock for years, although even I have to admit that share price growth has disappointed lately.

On the Money

I’m also interested in comparison site Moneysupermarket.com (LSE: MONY), whose stock is up 5% today after it announced 8% revenue growth in its preliminary results for the year ended 31 December.

After the initial surge in investor interest, which saw the site’s share price grow five-fold in as many years to top 370p in summer 2015, it’s been idling, amid fears Amazon might launch its own insurance comparison site. Even after today’s jump, it only trades at 326p, the same level as three years ago. 

Shareholder rewards

Today brought good news, though. Moneysupermarket delivered record levels of switching and helped its customers save an estimated £2.1bn, while adjusted EBITDA of £129.4m was in line with expectations. It also reported “strong cash generation” of £106.6m during the period, while making significant progress in executing its strategy to reaccelerate core growth and unlock new markets.

It rewarded loyal investors too, announcing plans to return an additional £40m to shareholders in 2019, in line with its capital allocation policy. It also hiked the total dividend by 6%.

Beyond compare

Group CEO Mark Lewis said the group is reinventing itself and “taking price comparison to the next stage.” The board is confident of delivering market expectations for the year, with trading in the first six weeks “encouraging.”

Moneysupermarket trades at 16.9 times forward earnings, so there’s no bargain valuation here. A price-to-revenue ratio of 4.4 is also a bit high. However, the forecast yield is 3.8% and, as we have seen, management’s dividend policy is progressive. Meanwhile, operating margins of 32.6% and return on capital employed (ROCE) of a whopping 257.3%, look splendid. My worry is that it’s in a competitive market, although revenues look set to grow 7% this year, and 9% next. Overall, Moneysupermarket compares pretty well.

Life style

So to Aviva. It currently offers a whopping forecast yield of 7.8%, which you can take tax free inside an ISA, while cover stands at a healthy 1.8. That’s not the only reason to buy it. As Roland Head points out, management has fulfilled its promises by boosting cash flow, repaying debt, tightening focus, and offering a rising stream of dividends.

City analysts reckon the dividends will keep flowing, rising from 30.23p in 2018 to 37.34p in 2020. That’s a leap of 23.5% in a couple of years. If it happens, it’ll lift the yield to 8.9%. This is a lousy time to be a saver, but a golden age for dividend investors.

Big is beautiful

Aviva’s earnings looks set to grow 6% in 1919 and 7% in 2020, which should sustain the share price. It currently trades at a dirt-cheap 6.8 times forward earnings. ROCE of just 8.5% looks a bit stodgy (investors prefer 15% and above), but the high dividend and valuation make a compelling case.

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has recommended Moneysupermarket.com. 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.