Are Legal & General Group plc, Aviva plc and Prudential plc good long-term holdings for your ISA?

Edward Sheldon examines whether it’s time to buy the insurers: Legal & General Group plc (LON: LGEN), Aviva plc (LON: AV/) and Prudential plc (LON: PRU)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If you’re looking to build a long-term blue-chip portfolio, you might be considering buying UK insurance companies. While generally not the most exciting of shares, insurance companies can offer a nice mix of capital growth and dividends for long-term investors.

With the share prices of key FTSE 100 insurance companies down significantly in 2016, investors might be wondering whether there’s trouble ahead in the insurance sector or whether now is the time to buy.

Woodford favourite

A favourite stock of legendary fund manager Neil Woodford, Legal & General (LSE: LGEN) has struggled so far this year. The stock is down around 19% year-to-date and is currently trading at around 220p after almost hitting 300p in early 2015. Is this a cause for concern?

The key driver of the share price fall has been uncertainty in relation to new european-wide regulation to be introduced shortly, ‘Solvency II’.

Solvency II will require insurance companies to hold certain levels of capital in an effort to reduce the risk of insolvency and therefore protect consumers, and analysts have questioned whether Legal & General’s dividend is sustainable under the new regulation.

There’s also been concern as to whether the insurance company has potentially dangerous oil exposure in its debt portfolio.

In my mind, these fears are overblown. Reassuringly, Legal & General recently announced that its Solvency II capital levels stood at 169% of the requirements and that its exposure to the oil and gas sector stood at just 5.2%.

It can pay to be greedy when others are fearful, and with the stock trading on a PE ratio of 11.9 and sporting a yield of over 6%, the current situation looks like an opportunity to me. And if there’s one investor I don’t mind riding the coat-tails of, it’s Neil Woodford.

Turnaround stock

Aviva (LSE: AV) has also struggled this year falling around 18%. While Aviva’s PE ratio of 18.50 looks quite expensive, this falls to just 8.81 on next year’s consensus earnings.

Having struggled over the last fews years, after the acquisition of Friends Life plc, I believe Aviva has the potential to be a classic turnaround stock. Results in March were excellent, with operating profit up 20% to £2.7bn and a 15% hike in the dividend. Solvency II capital stood at 180%.

The company said that the Friends Life acquisition had gone “faster and better than expected” and this should contribute to acquisition synergies and enhanced profits going forward.

Solid dividend cover  

A discussion of UK insurers wouldn’t be complete without mentioning Prudential (LSE: PRU), the UK’s largest insurer. The insurance giant had a strong run between 2011 and 2015, with the share price more than triple-bagging in this time.

However Prudential hasn’t been immune to the general insurance sell-off and is down almost 15% this year on fears that one of its key growth markets, Asia, may see subdued growth.

While Prudential’s dividend yield of 2.99% is smaller than the other two companies, its dividend coverage ratio is around 2.1 (the highest of the three) indicates that it may be the safest dividend.

And with the company reporting Solvency II capital of 190% and earnings per share growth of 30% for 2015, at the current PE ratio of 12.85 this is a solid company trading at an attractive price.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon owns shares in Legal & General plc and Aviva plc. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »