Although most investors focus on the major banks when looking at finance stocks, there are a number of superb opportunities among insurers and other lenders, too. In fact, even though the major UK banks offer excellent value for money and bright future prospects, there are a number of stocks in financial services that also come with a very appealing story and a sound investment case for long term investors. Here are three prime examples that could be worth adding to your portfolio right now.
Aviva
With interest rates set to stay low for a number of years – especially since inflation is zero, stocks with excellent dividend growth prospects could see investor sentiment improve dramatically. One such company is Aviva (LSE: AV) (NYSE: AV.US), which is expected to increase dividends per share by an incredible 19.3% next year and, despite this, it is still expected to have a payout ratio of around 47%. This shows that even if profitability does disappoint moving forward, there is still tremendous scope for dividend increases over the medium to long term.
As well as a forward yield of 4.7%, Aviva also offers scope for capital gains. Current management has been hugely successful at reorganising and rationalising the business, with Aviva’s bottom line moving in the right direction. And, with the merger with Friends Life offering synergies and increased growth potential, now could be a great time to buy Aviva.
Virgin Money
As mentioned, there is potential outside of the major UK banks for investors at the present time and one such example is Virgin Money (LSE: VM). It may not have the range of services or the size and scale of its larger peers, but it is not currently being held back by regulatory fines and allegations of wrongdoing, either, and this is helping its bottom line to grow at a rapid rate. In fact, Virgin Money’s profit is expected to be 58% higher next year than it was last year, which is a superb rate of growth.
Certainly, Virgin Money may have a forward yield of just 1.6% at the present time, but with it having a payout ratio of just 19%, there is huge scope for dividend increases over the medium term. This could increase market sentiment further and push Virgin Money’s share price much higher.
Beazley
Although Beazley (LSE: BEZ) is expected to post a decline in its bottom line in each of the next two years, the insurance company still has huge potential. That’s because it offers considerable income prospects and the scope for an upward rerating to its valuation over the medium term.
For example, Beazley currently trades on a price to earnings (P/E) ratio of just 11.6, which is considerably less than the FTSE 100’s P/E ratio of around 16. And, with Beazley having a price to book (P/B) ratio of just 1.7, there seems to be considerable scope for share price gains moving forward. In addition, Beazley has a dividend yield of 3.5% from a dividend that is covered 2.4 times by profit, which indicates that it has the potential to become a top income stock.
International Personal Finance
2015 is not set to be a great year for International Personal Finance (LSE: IPF), with the lender expected to post just a 1% gain in its bottom line. However, its shares are up by 11% in the last three months and a key reason for this is likely to be the fact that it is expected to increase its profit by 14% next year, which is around twice the growth rate of the wider index.
Certainly, International Personal Finance is benefitting from low interest rates, which increase demand for new loans, but even if they begin their eventual rise they are unlikely to increase at much more than a pedestrian rate. As such, International Personal Finance’s price to earnings growth (PEG) ratio of 0.8 looks highly appealing and makes it a strong buy at the present time.
