Why Aviva plc Should Beat Legal & General Group Plc And Prudential plc In 2015

If you’ve ever considered investing in life insurance, you must surely like the look of the sector right now. It was battered by the financial crisis, but some of the biggest FTSE 100 insurers are looking good. Here’s a quick look at Aviva (LSE: AV), Legal & General (LSE: LGEN) and Prudential (LSE: PRU), with current forecasts:

  Aviva Legal & General Prudential
Share price 506p 247p 1,551p
EPS 2013 220p 15.2p 90.9p
P/E 20.4 14.7 14.7
Dividend 2013 15.0p 9.3p 33.6p
Div yield 2013 3.3% 4.2% 2.5%
Div cover 2013 1.5x 1.6x 2.7x
EPS 2014 (*)
47.1p 17.1p 97.3p
P/E 10.6 14.4 15.7
Dividend 2014 16.9p 11.1p 36.1p
Div yield 2014 3.3% 4.5% 2.3%
Div cover 2014 2.8x 1.5x 2.7x
EPS 2015 (*)
49.1p 18.5p 110p
P/E 10.2 13.2 13.9
Dividend 2015 19.5p 12.6p 39.6p
Div yield 2015 3.8% 5.1% 2.6%
Div cover 2015 2.5x 1.5x 2.8x

* = forecast

Prudential has lived up to its name, was never overstretched during the crisis, carried on growing its earnings per share (EPS), didn’t go mad paying unsustainable dividends, and has seen its share price soar by 153% over five years as a result while retaining a modest P/E rating. I really can’t see how an investment in Prudential over the long term can go wrong, but it’s not my choice for 2015.

Legal & General has done even better over five years, with a 222% gain and with higher dividends. Its earnings were a little erratic during the crisis, but the firm did manage to maintain its dividend — the yield exceeded 6% in 2011 (at year-end prices), yet it was still well covered. Again, P/E multiples are modest, and dividend yields are very attractive. And again, I reckon Legal & General is likely to reward shareholders very well in the coming years. But in 2015, I think it’s going to be beaten by Aviva.

The lame duck

Aviva really dropped the ball during the recession, with EPS plummeting by 82% over the three years to 2011 — yet it apparently didn’t see any need to reduce the cash it was handing out, and in fact increased its dividend each year! At the end of 2011, a dividend of 26p per share yielded a massive 8.6%, yet was only 43% covered by EPS of 11.1p.

We’ve seen the subsequent slashing of the dividend, and Aviva went into serious recovery mode and made a big effort to shore up its capital, get its balance sheet in better order, and get somewhere towards resuming growth. We’ve already seen the results, and at Q3 time we heard that all key measures were increasing in strength. New business was up 15% to £690m, with net assets up 10% — and Aviva was seeing growth in most of its markets.

CEO Mark Wilson did caution us that “there is still more to do before we can be satisfied we are fully delivering on our investment thesis of cash flow plus growth“, and I think that’s why Aviva shares are still so lowly-rated in P/E terms — the markets are still not fully confident that the recklessness of the past is truly behind us.

Aviva in 2015?

After a price recovery starting in April 2013 Aviva’s shares are up only 35% over five years, and it’s easy to see why. But I think returning confidence should see it outperform its rivals in 2015.

Would Aviva fit well in a your retirement portfolio? Over the long term, I reckon you could do a lot worse.

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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.