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The Aviva share price is ridiculously cheap on record FTSE 100 profits. I’m buying!

The Aviva (LSE:AV) share price has barely moved, despite record £3.2bn operating profits.

The FTSE 100 favourite’s share price now sits below 340p. That’s a price-to-earnings ratio of just 9.2, well under the market average of 16. In my opinion that’s far too cheap for a fundamentally sound business like Aviva.

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This stock makes perfect sense for investors fleeing to safer options as markets crumble. And for income investors who want to sit back, relax, and take high-yield dividends to help pay for their retirement, there are few better options.

9% yield

The Aviva share price is poised for an upsurge when coronavirus fears dissipate and markets find a bottom. When that happens, a 9% dividend yield will probably pare back to a more sanguine level between 6.5% to 8%, by my calculations.

In the meantime, I’m loading up on the insurance giant. Institutional investors’ losses can be our gain.

City analysts think Aviva is undervalued by as much as 70%. When the dust settles on the other side of this market slump, investors will be in prime position to snap up a bargain.

CEO Maurice Tulloch told investors with not a little humility on the 5 March results day that he is “committed to running Aviva better“. He is laser-focused on the fundamentals, which I particularly like. What is key to that plan is to excel at the basics of “giving customers a simpler, faster and more convenient service“.

Strong balance sheet

The UK’s largest insurer now serves 33.4m customers, up 2% on last year. That’s a large and loyal customer base to work with. Assets are 9% higher at £417bn thanks to sound investments. The company also says the long-term outlook is positive in the majority of its markets.

The underlying business is extremely strong. Recent results showed operating profits 6% higher, an already hefty capital surplus rising by £600m to £12.6bn and full-year dividends hiked by 3% to a 10-year high of 30.9p per share.

Credit ratings agencies already say Aviva is rated ‘A’ to meet policyholder obligations.

And the present value of new business premiums, a measure of total sales in its insurance business, is up 12% to £45.7bn. Aviva also reduced its debt leverage ratio to a conservative 31%, which should support long-term stability.

Go long

What makes me particularly happy is that the company is ahead of its stated plans for return on equity. It has thrashed its target of 12% by 2022 to return 14.3% this time around. To achieve that goal Tulloch will trim costs and allocate more capital to the best-returning parts of the business.

Like most FTSE 100 firms it has expressed concerns over the uncertainty that Covid-19 brings to the market. But as it noted in its results, “our scale, diversity, and the strength of our balance sheet will help meet any short-term challenges.”

If all of this sounds quite dull, you wouldn’t be far wrong. But at a time of intense volatility, I’m betting on dull, well-managed businesses to gain the most.

A top income share with a juicy 5% forecast dividend yield

Income-seeking investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this out-of-favour business that’s throwing off gobs of cash!

But here’s the really exciting part…

Our analyst is predicting there’s potential for this company’s market value to soar by at least 50% over the next few years...

He even anticipates that the dividend could grow nicely too — as this much-loved household brand continues to rapidly expand its online business — and reinvent itself for the digital age.

With shares still changing hands at what he believes is an undemanding valuation, now could be the ideal time for patient, income-seeking investors to start building a long-term holding.

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Tom Rodgers owns shares in Aviva. 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.