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FTSE 100 dividend stocks: why I’d buy shares in this company yielding almost 6%

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FTSE 100 insurance company Aviva (LSE: AV) today announced its exit from Italy with the sale of its remaining businesses there. And I reckon the ongoing transformation of the overall business makes the stock a potential buy.

Refocusing on core operations

The divestment of the Italian insurance businesses is set to raise around €1.3bn for Aviva. And the move continues a strategy under chief executive Amanda Blanc to refocus the overall business on its core operations in the UK, Ireland and Canada.

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Blanc explained in today’s news release that since August last year, seven divestments have been announced. And those deals should raise around £5bn in cash proceeds. And in today’s full-year results report, the company said it plans to “accelerate” its debt reduction plans.

The strategy reminds me of supermarket chain Tesco‘s retreat from overseas markets. And I think it’s a good idea. Sometimes companies expand but without achieving decent levels of profit with their operations. Or perhaps expansion stretches the balance sheet. And then those overseas and non-core businesses can end up draining management time.

I think it’s almost always a good idea for companies to concentrate their focus. And Aviva’s aim of focusing on its core operations could pay off. But a smaller business will lead to a smaller turnover. However, the company today announced a new target to generate more than £5bn of cash remittances from its remaining core businesses over the next three years.

To put that in perspective, the firm achieved cash remittances from its core business of £1,359m in 2020, down from £1,409m in 2019. The new target works out at an average of £1,667m over three years and stretches the business a bit. However, remittances from all operations including non-core came in at £1,500m in 2020 down from £2,597 in 2019.

Profits are what really counts

But Aviva may be able to squeeze more profits from its core operations. The firm said reduced debt interest and costs “will drive strong growth in excess cash flows.” And it plans to use the money to invest in the business and to grow returns for shareholders.

I think the performance of the business through 2020 demonstrates its resilience. The company said profit from its core markets came in just 3% lower compared to 2019, at £2,492m. The directors described 2020 trading in its key markets as “strong”.

The outlook is optimistic. Aviva plans to continue with its strategy of focusing its portfolio and expects to transform the company’s performance. It’s clear Aviva wants to focus on profitability from its core markets as a driver of ongoing shareholder returns.

Of course, things may not work out as planned. Aviva has a bit of a chequered history when it comes to providing shareholder returns. The share price and earnings have been volatile, and the company has sometimes trimmed or cut its dividend. Although I see the current restructuring as positive, there’s no escaping the inherent cyclicality in the business.

Nevertheless, with the share price near 391p, the forward-looking dividend yield for 2021 is just below 6%. And I’m tempted to buy a few shares to see how the story unfolds in the years ahead.

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Kevin Godbold has no position in any 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.