Should You Add Aviva plc, Admiral Group plc And Catlin Group Limited To Your ISA?

Is now the right time to buy these 3 insurance stocks: Aviva plc (LON: AV), Admiral Group plc (LON: ADM) and Catlin Group Limited (LON: CGL)?

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Aviva

On the face of it, Aviva’s (LSE: AV) (NYSE: AV.US) yield of 3.8% is somewhat disappointing. Certainly, it’s better than many of its index peers, but is not quite high enough to be viewed as a top notch income play right now. However, that looks set to change, since Aviva has the scope to hugely increase dividend payments over the medium term since its payout ratio stands at just 44%. This shows that it could afford to pay out a much higher proportion of profit as a dividend, which bodes well for future dividend growth.

Furthermore, Aviva is forecast to increase earnings by 16% next year, which provides yet more scope for higher dividends in 2016 and beyond. As such, now could be a great time to buy a slice of it for your ISA.

Admiral

While Aviva’s present dividend may not be sky-high, Admiral’s (LSE: ADM) certainly is. In fact, it is forecast to yield a whopping 5.8% in the current year, followed by 6.2% next year as it is expected to significantly increase dividend payments. This means that, even if its share price does not move higher, you could generate a return of 12% in two years from dividends alone.

Of course, Admiral trades on a relatively high valuation. For example, it has a price to earnings (P/E) ratio of 16.8, which is higher than the FTSE 100’s P/E ratio of around 16. As such, capital gains may appear to be somewhat limited. However, with such a high dividend yield, investor demand could improve dramatically and send Admiral’s shares northwards. Therefore, an excellent total return looks set to be on offer.

Catlin

As with most insurance stocks, Catlin’s (LSE: CGL) bottom line is somewhat volatile. For example, over the next two years it is forecast to fall by 28% following a number of strong years for the business. This instability is, however, priced in to the company’s current valuation, with Catlin’s shares presently trading on a P/E ratio of just 12.4. As such, there appears to be significant potential for an upward rerating adjustment over the medium term.

And, in the meantime, Catlin pays a very appealing dividend yield of 4.4%, which makes the company’s shares even more attractive, while a beta of just 0.6 should mean that they offer a less volatile experience than the wider index in future. As a result, they appear to be well-worth adding to your ISA in just a week’s time.

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.

Peter Stephens owns shares of Aviva. 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.

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