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A dirt-cheap 7%-yielding FTSE 100 dividend stock that I'd buy for 2021

This FTSE 100 dividend stock looks too cheap to Roland Head, who says the new CEO is acting decisively to release value for shareholders.

Despite this year’s stock market rally, I think there are still some bargain buys out there for UK investors. Today I want to look at a FTSE 100 dividend stock that’s risen by 50% since March but still looks cheap to me, with a dividend yield of 7%.

FTSE 100 insurer Aviva (LSE: AV) is a household name in the UK, where it has a big share of the market. However, the firm has struggled to deliver the kind of growth achieved by rivals such as Prudential and Legal & General in recent years. This year has also seen the firm cut its dividend.

That’s the bad news. The good news is that Aviva has a new CEO, Amanda Blanc, who appears to be acting quickly and decisively to solve these problems. As I’ll explain, I believe Blanc could deliver where previous bosses have failed.

Clear focus

UK readers will know Aviva for its insurance products and perhaps its pension and investment products. What you might not realise is that the group has sizeable businesses in Ireland and Canada. In addition to this, Aviva has smaller operations in a range of other Asian and European countries.

Blanc is determined to address this sprawl. Her strategy is to focus the company on its three core markets. Operations elsewhere are being sold. Since taking charge in July, Blanc has disposed of businesses in Italy and Singapore, raising about £2bn. Aviva’s operations in Indonesia, Hong Kong, and Vietnam have also been sold. I expect more changes next year.

This strategy should create a more focused and manageable business that generates predictable income streams. For a FTSE 100 dividend stock, consistency is important. If Aviva can achieve this, then I believe investors may be willing to pay a higher price for the firm’s shares.

Value, but what about growth?

Aviva trades on just six times forecast earnings. At around 330p, the shares sit at a 20% discount to the company’s book value of 410p per share. I’m certain that this FTSE 100 dividend stock offers good value.

What’s less certain is whether Blanc will be able to find a way to deliver consistent growth in the UK, Ireland, and Canada. After all, these are all fairly mature markets. Most people already have all the insurance they need, so gaining market share means stealing customers from other insurers. It’s not easy.

It’s time to buy this FTSE 100 dividend stock

I’ve followed Aviva for a number of years. In my view, this is the best opportunity yet to participate as an investor in a sustainable turnaround of this business. Blanc appears determined to avoid the indecision and mistakes of previous CEOs. She also appears to have a clear focus on realising value for shareholders.

Aviva is a sizeable holding in my own portfolio, so I’ve got an interest in this stock. In my view, the downside risk from now on should be limited by the 7% dividend yield and the stock’s modest valuation. I’m happy to hold for the income and the potential for a re-rating — or a takeover offer.

Roland Head owns shares of Aviva. The Motley Fool UK has recommended Prudential. 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.

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