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Aviva plc, Legal & General Group Plc And Prudential plc Are Flying, But Still Look Cheap

The FTSE 100‘s three big life insurers have come storming back from the recession years.

Legal & General (LSE: LGEN) is up 14% over the past 12 months to 244p, with Aviva (LSE: AV) and Prudential (LSE: PRU) both up 17%, to 508p and 1,529p respectively. But even after such a run, I reckon all three are still good value. Here’s why…

Legal & General

Legal & General kept its dividends well covered and they only dipped a little during the credit crunch. And from a low of 3.48p in 2009, the dividend was steadily hiked to 9.3p by 2013.

Over that period, the lowest the yield got was 4.2%, in 2013, and then only because the share price had risen strongly. It peaked at over 6% in 2011, and we have 2014 and 2015 forecasts for 4.5% and 5.1% respectively. Cover by earnings should be around a respectable 1.5 times for both years.

We had a 21% rise in the interim dividend, and at Q3 time cashflow was still looking very strong. On a P/E of around 14, Legal & General looks good.

Aviva

Aviva was not so astute with its dividends and they got overstretched, and the annual payment was pared back from 26p per share in 2011 to just 15p by 2013.

The share price dipped too, which was not surprising, but with dividend cover drastically improved the shares started looking very attractive and soon recovered. With a doubling of earnings per share on the cards for this year, the forecast 3.1% dividend yield would be covered 2.8 times! And the 3.6% penciled in for 2015 would be covered 2.5 times too.

At Q3 time, Aviva’s strength was improving, and with a forward P/E of under 11 I really don’t know why the institutions aren’t snapping this one up.

Prudential

Prudential has lived up to its name and has kept its dividends modest and very well covered, and that’s meant it’s been able to lift its annual cash handout every year for the past ten years. And if forecasts prove accurate, we’ll see the same for the next two years too.

At Q3 time last week, the Pru told us it was “sustaining strong profitable growth” with new business up 17%, so I really don’t doubt those forecasts — Prudential must be easily the most predictable in its sector.

Dividend yields are modest at around 2.5% and there’s a P/E of 14 to 15, so Prudential might not look like a bargain — but I think the price is worth paying for its reliability.

The best?

My preference is for Aviva, because I think there is still some negative sentiment that should be shaken out in the coming years — but I think you’d do well with all three.

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Alan Oscroft has no position in any shares mentioned. 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.