2 FTSE 100 value stocks that could fund your retirement

The FTSE 100 continues to fly high above the 7,000 level but a number of stocks still show classic value characteristics of low earnings multiples and high dividend yields.

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Today, I'm looking at two companies that I believe could reward value investors handsomely in the coming years.

Big re-rating potential

I've been mightily impressed by the progress made by Aviva(LSE: AV) since Mark Wilson was brought in as chief executive in 2013. I like the group's diversification across life insurance, general insurance and asset management and the geographical spread of its operations. Most of all, I like the way Mr Wilson is running the businesses with a focus firmly on cash flows and shareholder returns.

Aviva's progress has been such that it now has a strong regulatory Solvency II ratio and the capacity to deploy surplus capital. This will allow investment in organic growth and bolt-on acquisitions, as well as extra returns to shareholders, on top of a progressive dividend.

Analysts at Credit Suisse reckon Aviva has a sector-leading operating free cash flow yield and that management could surprise with a special dividend of 16p as early as this year. The possibility of this may be increased after Aviva announced today a £403m sale of some of its joint-venture stakes in Spain. The transaction, which is expected to complete later this year, will increase Aviva's Solvency II capital surplus by about £130m.

The City consensus ordinary dividend forecast for 2017 is 25.9p a share, giving a yield of 4.8% at a current share price of 540p. That's attractive enough, but a 16p special dividend would take the yield to 7.8%. Meanwhile, the forward price-to-earnings (P/E) ratio is an undemanding 10.8.

I fully expect the market to warm to Aviva's cash generation and push the shares up to give a more normal earnings multiple and yield. For example, the long-term average forward P/E of the FTSE 100 is around 14. If Aviva were to trade on that multiple, its share price would have to rise to 700p. This would also bring the forward yield on its ordinary dividend in line with the market-average 3.7%. Such a rise in the shares would appear justified to me and I believe they offer excellent value at 540p.

More opportunity than threat

Energy utility SSE(LSE: SSE) is another stock currently boasting strong value credentials, helped by a depressed share price since Theresa May's plans to cap standard variable energy tariffs were first aired last month.

Historically, regulated utilities -- both energy and water -- have faced bouts of government meddling but suffered no long-lasting damage. As such, I see this latest instance of populist politicking as more of an opportunity than a threat, as far as investors are concerned.

SSE is forecast to report earnings per share of close to 122p and to declare a dividend of 91.4p when it announces its annual results next week. At a current share price of around 1,450p, this gives a P/E of under 12 and a dividend yield of 6.3%.

SSE's earnings growth isn't forecast to be quite as strong as Aviva's over the next few years, although I still see scope for the shares to re-rate higher to a degree. The combination of earnings growth, the potential for a modest re-rating and a generous dividend lead me to believe that SSE is another attractive value stock to buy today.

Are there better buys than Aviva and SSE?

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G A Chester has no position in any shares 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.