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Why I think the Aviva share price is perfect for my 2019 ISA

There’s a whole new ISA allowance coming up in April, and loads more potential tax to save. If you’re like me, you won’t have £20,000 per year spare for investments and won’t use the full amount, but the deadline provides an extra impetus to using as much as the current year’s allowance as possible.

What’s your strategy? Well, first up, mine’s to steer well clear of cash ISAs. With interest rates typically little more than 1% while inflation is running at around twice that, they’re not for me.

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Shares all the way

It just has to be dividend paying shares stashed in a stocks and shares ISA, and I typically look for solid reliable dividends that I think will keep on paying over the long term.

But with my long-term horizon, I see great scope for adding companies in cyclical sectors, whose earnings and dividends can rise and fall, but which provide an attractive (if perhaps a little erratic) long-term cash stream.

The insurance sector has been a favourite of mine for a long time, and I’m looking at Aviva (LSE: AV) once again, now that its share price has been in a bit of a slump and its forecast dividend yields have climbed.

We’re in very uncertain economic times, and that helped push the Aviva share price down by more than 25% between last summer’s high point and the end of 2018.

Very low P/E

And though we’ve seen a bit of a recovery so far in 2019, Aviva shares are now trading on a forward P/E multiple of only around seven (based on 2019 forecasts). The falling share price has pushed predicted dividend yields up above 8%, and they’re around 1.8 times covered by expected earnings.

I like to see cover a bit stronger than that, but with yields so high right now even a cut to bring the payment down to twice-covered would still result in a yield as high as 7.6%. So there’s bags of safety.

I like the look of Aviva shares so much at the moment that, even though I already have some in my SIPP, I also have an Aviva top-up high on my list of ISA candidates for the investment cash I’ll have between now and April.

But today’s bargain price levels might not last long, with full-year results due on 7 March. We’ll be hoping for news on the company’s new CEO search after Mark Wilson announced his departure, and that event will have added to the share price fall. But, as my Motley Fool colleague Paul Summers has pointed out, Aviva is in much better shape today than it was when Wilson took the helm in 2013.

Other attractions

Others in the sector also look good value to me. RSA Insurance Group has dividend yields forecast to reach 6% by 2020, though cover is a bit less and the shares are more fully valued.

And Standard Life Aberdeen is offering yields of more than 9% right now, albeit barely covered, and we’re looking at a P/E of around 10.

 But Aviva is very much my pick of the bunch, and I’d rather buy more of the same than diversify for the sake of it.

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Alan Oscroft owns shares of Aviva. The Motley Fool UK has recommended Standard Life Aberdeen. 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.