Aviva plc Is Still My Favourite Insurer

Aviva plc (LON: AV) dividends look set to resume growth.

| 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.

I’m taking a look around the various sectors of the FTSE 100 to see if I can pick a favourite from each, and today I’m turning my gaze to the insurance sector.

I was looking to add an insurer to the Fool’s Beginners’ Portfolio last year, and I narrowed my choice down to Aviva (LSE: AV) (NYSE: AV.US) or RSA Insurance (LSE: RSA). Both had seen their dividends stretched by the crunch years, and both had been forced to slash them.

I thought the share prices of both had been punished a little too hard, with Aviva shares possibly being the most oversold. So that’s what I went for — but do I still think Aviva is the pick of the sector?

Still the tops?

The short answer is yes, and that’s partly due to the accounting irregularities that have come to light at RSA’s operations in Ireland. That led to a capital shortfall of £200m and a pre-tax loss of £244m for the year ending December 2013, and caused a share price slump — the price fell by nearly 30% during 2013.

The problems did only affect Ireland, but we’ve since heard of a new rights issue, divestments and some high-level resignations. RSA is not the best in the sector right now!

prudentialNice, but not cheap

Prudential (LSE: PRU) (NYSE: PUK.US) is another I like the look of. With the exception of a fall in 2013, the Pru has kept its earnings growing throughout the recession, and we have two more years of growth forecast.

There have also been no problems with over-stretched dividends. By keeping them conservative, Prudential has maintained high cover, but that does mean relatively low yields — we saw 2.5% for the year just ended, with a fraction more than that expected this year.

And Prudential shares are more highly valued, too, with a forward P/E of 14 based on 2014 forecasts and the current price of 1,320p.

avivaAviva shares, priced at 503p, are on a P/E of 10.5 with a 3.3% dividend yield predicted, and the City is expecting to see sustainable growth in that dividend, too.

Bargain price

So Aviva is still my pick, based largely on the bad run of results being in the past, the rebased dividend now looking steady and poised for a return to growth, and the shares being oversold and too cheap.

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.

Alan does not own any shares mentioned in this article.

More on Investing Articles

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

3 UK stocks I reckon could benefit from the upcoming general election

As the general election hurtles towards us, this Fool wonders which UK stocks could benefit, and focuses on three picks…

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

At 11%, this dividend share pays the biggest yield in the FTSE 100

When a dividend share offers a big yield, we need to be cautious of the risks. But I reckon this…

Read more »

British Isles on nautical map
Investing Articles

I reckon Hiscox shares could be one of the best bargains on the FTSE

I've been investing in FTSE companies for years, but after a major decline I've not seen a company with as…

Read more »

Grey Number 4 Stencil on Yellow Concrete Wall
Investing Articles

4 reasons I’d still buy National Grid shares in a heartbeat despite the recent wobble!

As National Grid shares plunged on the news of a right issue, I’m not flinching, and reckon it's a top…

Read more »

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

After gaining 45% in 12 months, is the Amazon share price now overvalued?

Our author thinks the Amazon share price might be too high. While the long-term future of the business looks bright,…

Read more »

Investing Articles

2 hot dividend stocks I’d buy and hold for 10 years

Our writer reckons these two dividend stocks could help her bag juicy dividends for years to come and explains why.

Read more »

British Pennies on a Pound Note
Investing Articles

2 dividend-paying penny shares I’d happily own

These two penny shares have caught our writer's eye for a combination of income prospects now and business growth potential…

Read more »

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

This FTSE 250 share looks like a bargain to me!

This FTSE 250 share has seen its price tumble due to chaotic local economic conditions in a key market. But…

Read more »