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Only a week ago, traders and investors were panicking that global stock markets could collapse. Not only have these fears not materialized (at least for now), the FTSE100 The stock index has actually recovered all its previous losses.
Bargain hunters shouldn’t be put off by this strong recovery, though. After years of underperformance, there are still plenty of excellent value stocks to buy in the Footsie.
So which one would I buy if I had money left to invest? Here’s one of my favorite products. Broker predictions say this could be a low-cost way to generate huge passive income for at least the next few years.
A cheap share
AvivaThe share price of (LSE:AV.) carries a huge dividend yield of 7.3% for 2024. This makes the company one of the largest potential dividend payers in the FTSE 100 today.
The company also offers excellent value for money in terms of earnings forecasts, with City analysts expecting earnings to grow 21% this year, putting the price-to-earnings (PEG) ratio at 0.5.
Any value below 1 means that a stock is undervalued.
There is a lot to like about Aviva. In fact, I own its shares in my Individual Savings Account (ISA) And my self-invested personal pension fund (SIPP).
I like the company’s excellent brand strength and strong position in fast-growing markets. Demand for retirement, wealth and insurance products is increasing rapidly as the populations in the UK, Ireland and Canada age.
I’m also a big fan of Aviva’s exceptional cash generation. This means the company has cash for organic investments, acquisitions, dividends and share buybacks. The Solvency II capital ratio is consistently above 200%.
Risks
But as with any stock, there is risk. In tough economic times, earnings can fall as consumer spending declines.
The company, which also has a significant property and casualty insurance business, is also exposed to rising claim costs due to climate change.
According to the Association of British Insurers (ABI), property insurance claims rose to £1.4 billion between April and June due to storms and heavy rain, the highest since records began (albeit only recently, in 2017). However, this figure is unlikely to remain this high as extreme weather events become more frequent.
This dividend yield
But overall, I think the potential benefits of owning Aviva shares outweigh the risks. I think it could be a particularly good way to earn a great second income.
| Year | Expected dividend per share | Dividend growth | Dividend yield |
|---|---|---|---|
| 2024 | 35.40 bps | 6% | 7.3% |
| 2025 | 38.08 p | 8% | 7.9% |
| 2026 | 40.80p | 7% | 8.4% |
As we can see, City analysts expect dividends to continue to rise over the next few years at least. This pushes the dividend yield up to 8.4%, more than double the Footsie average of 3.5%.
I also think dividends will grow strongly over the long term, supported by the company’s accelerated investment in capital-light businesses to tap into its growing markets.
At 434p, Aviva’s share price is too low in my opinion to ignore if I have the money.
