I’d buy this underappreciated FTSE 100 stock right now

The FTSE 100 has remained largely flat in the last year, returning less than 1%. However, this is still better than many individual shares.

For example, both Halma and Hargreaves Lansdown enjoyed solid growth this year. Yet their share prices have fallen by 18% and 24%, respectively.

While Aviva (LSE:AV) shares haven’t seen such a drastic fall, they’ve still declined by almost 8%.

I believe this provides me with an opportunity to consider adding some of its shares to my portfolio.

What are the risks?

Unfortunately, the financial services industry hasn’t had a great 2023.

This isn’t good for Aviva, as an insurance firm. In fact, for many firms in this area, their share prices have been struggling considerably since the major financial crisis in 2007.

HSBC, Lloyds, and Barclays are among the companies whose share prices are yet to recover from this period.

Aviva has been no exception, with its share price still down by about 63% from the start of 2007.

The US banking crisis back in March this year didn’t help things, with many financial services firms seeing their share prices falling considerably as a result.

Furthermore, the UK economy failed to grow at all in the third quarter of this year.

As the insurance industry is influenced by the wider economy, there’s a risk that Aviva won’t be able to generate meaningful growth for a while yet.

This means as the UK economy stagnates, so could Aviva shares.

I’m an investor who thinks about the long term though.

I don’t care if the economy isn’t doing so great in the short run. I know it will stabilise at some point. Once it does, financial services firms should thrive as the economy grows.

Moreover, I can see that Aviva has £19.8bn on its balance sheet.

This should be more than enough to weather any powerful economic storm that presents itself in the short term.

The dividend is just too good to ignore

With a dividend yield of 8.2%, Aviva shares offer an excellent opportunity to build a second income.

It’s important to remember that dividends aren’t guaranteed, but let’s see how many of its shares I’d need to buy to generate £100 a month.

Assuming the 31p per share in dividends that were paid out last year will be the same this year, I’d need to buy 3,871 of its shares to achieve this.

This is a conservative estimate too. The actual number of its shares I’d need to buy could be less.

As mentioned, I’ve assumed that the interim dividend this year is the same as last year. However, Aviva has already announced that it will be 8% higher this year than last year, increasing from 10.3p per share to 11.8p per share. If the final dividend increases by a similar amount, I wouldn’t need to buy this much stock to generate the same passive income.

I also like that this increase is sustainable as it’s in line with the rise in operating profit.

Moreover, Aviva has been able to improve its operating profit while the financial services sector is under high pressure. This is a good sign.

Therefore, if I had the spare cash, I’d buy its shares today.


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