Should I Buy Aviva plc For My ISA?

Aviva (LSE: AV) (NYSE: AV.US) might seem a strange choice to invest in just now. Last week the insurer angered investors with a 44% cut to its dividend, sending the shares down 15%.

The merits of the dividend cut are debateable. It seems new chief executive Mark Wilson won the argument with chairman John McFarlane, who said last year he was working to maintain the payout. Reducing the dividend helps strengthen Aviva's balance sheet, but it's moot whether the benefit is proportional to the adverse impact.

Buying opportunity

The share-price drop creates a buying opportunity. It's not only me who thinks that. Mark Wilson has just shelled out £500,000 on the shares.

Directors are prevented from buying or selling shares in the run-up to announcing results, because they have 'inside information'. Thus it's common to see directors dealing shortly after results. It's a good thing that a new boss should buy shares.

Of course, Mr Wilson must have known the impact the dividend cut would have on the share price when he recommended it to the board.

From here on, up

Mr Wilson will be accused of kitchen-sinking. But the cold reality is that, from here on, Aviva's prospects look brighter and there is still a good investment case -- made stronger for new investors by the share-price fall.

Prudential's boss nearly lost his job in 2010 when shareholders revolted against a $30bn Asian acquisition. Yet today Prudential is a darling of the stock market, with Asia its biggest cash contributor. The best time to back good companies and management is when they're at their lowest ebb.

Aviva is still a strong turnaround story. Mr McFarlane instituted a programme to sell underperforming units, scythe through costs and instil a new culture. Mr Wilson brings strong credentials and has changed the management team.

He's also separating UK general insurance from the rest of the group, which might presage a future sell-off. The rebased dividend still yields a decent 5.9%, too.

ISA time

It's worth thinking about putting money into an ISA before the tax-year deadline of 5 April if you haven't done so already. With shares held in ISAs, you don't pay any capital gains tax and the dividends aren't liable to additional income tax. You also don't declare ISAs on your tax form, saving paperwork. There's more information about ISAs here.

Whether Aviva appeals to you or not, I recommend you also have a look at this company. It's yielding roughly the same as Aviva, but it operates in a sector well-known for dividend reliability.

Unlike many stocks, the company isn't exposed to events in the eurozone, and it's been chosen as 'The Motley Fool's Top Income Stock for 2013'. You can find out more in an exclusive report. Just click here to download it-- it's free.

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