Is Direct Line Insurance Group PLC, Aviva plc, Old Mutual plc Or Standard Life Plc The Best Insurance Play?

direct line

2014 has been a great year for investors in insurance companies. Indeed, the share price returns of the likes of Direct Line (LSE: DLG), Aviva (LSE: AV) (NYSE: AV.US), Old Mutual (LSE: OML) and Standard Life (LSE: SL) have all beaten the return on the FTSE 100 year-to-date.

Looking ahead, though, which of the four stocks is the best buy?

Direct Line

Even though results released this week by Direct Line showed that the company is on-track to meet its full-year guidance, shares in the company fell post-release. A possible reason for this could be profit taking, with Direct Line’s share price having risen by an impressive 11% since the turn of the year.

Looking ahead, though, there could be more share price gains to come from Direct Line. That’s because it currently yields a whopping 7.9%, with dividends due to be covered 1.2 times by profit next year. This is a hugely appealing yield and, with interest rates set to remain low over the medium term, increased investor hunger for dividends could send demand (and Direct Line’s share price) much higher.


Also performing well in 2014 is Aviva, with its share price recording gains of 16% since the turn of the year. A key reason for this has been a sound turnaround strategy that is causing investor sentiment to improve significantly.

Although dividends are unlikely to return to their 2011 highs in the near-term, Aviva’s income prospects are considerable. Shares in the company currently yield 3.2% but, with dividends set to increase at a brisk pace next year, Aviva could be yielding as much as 3.7% in 2015. This impressive income potential, when combined with a price to earnings (P/E) ratio of just 11, means that Aviva could be a great buy right now.

Old Mutual

Although its share price has risen by just 2.5% in 2014, Old Mutual has huge potential. For starters, it offers a top notch yield of 4.5% and, with dividends per share set to grow by 12% next year, this could be as much as 5.1% next year.

However, it’s with regard to Old Mutual’s growth prospects where its real potential lies. Indeed, it is forecast to increase earnings by a hugely impressive 15% next year and, despite this, trade on a P/E ratio of just 11.6. This means that its price to earnings growth (PEG) ratio of 0.8 indicates growth at a very reasonable price, meaning Old Mutual could be a star performer over the medium term.

Standard Life

With share price gains of 9% in 2014, Standard Life has easily outperformed the FTSE 100. However there could be much more to come, since it is forecast to increase the bottom line by a hugely impressive 10% in the current year, and by a further 21% next year.

Although shares in Standard Life trade on a P/E ratio of 18.1, such strong earnings growth prospects mean that it has a PEG ratio of just 0.8. And, when a yield of 4.3% is added to the mix, it means that Standard Life has huge appeal to both growth and income investors and, as a result, could see its share price move upwards over the medium term.

Looking Ahead

While all four stocks have huge potential and could be worth buying right now, the income prospects, growth potential and super-low valuation of Old Mutual combine to make it my top pick of the four insurers.

However, its performance could be outdone by these 5 companies, which have recently been named as The Motley Fool’s 5 Shares To Retire On.

The companies in question offer dependable dividends, stunning growth prospects, and trade at hugely enticing valuations. As a result, they could boost your returns and make 2014-15 an even better period for your investments.

Click here to find out all about them – it’s completely free and without any further obligation to do so.

Peter Stephens owns shares of Aviva, Old Mutual, and Standard Life. 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.