Why I’d Buy Aviva plc Before RSA Insurance Group plc And Prudential plc

I’ve been following insurance companies since the depths of the recession, when overstretched dividends started snapping and some in the sector were forced into a strategic rethink. I saw bargains, and I added Aviva (LSE: AV) to my Beginners’ Portfolio. In a little over two years since, with the price now at 525p, Aviva is up more than 70% including dividends and costs. But I reckon it could still be the bargain of the sector.


RSA Insurance (LSE: RSA) is another that had to slash its dividend, to almost nothing in 2014, and that was part of a successful turnaround that reversed RSA’s losses and looks set to return company to positive earnings per share this year. But RSA was slower to get its act together, and we had a half-hearted dividend reduction in 2012 before the nettle was properly grasped. The dividend should be back to a reasonable yield of 2.4% this year, with analysts suggesting 3.4% next — and with EPS growth of only 7% on the cards for 2016, forward P/E ratios of 14.5 to 15.5 on a share price of 446p don’t look like great bargains it me.

The first quarter of this year brought only a 1% gain in core premium income, and there’s a lot more the RSA needs to do — although in Stephen Hester I reckon RSA has possibly the best financial-sector CEO in the country.

Well managed

Turning to Prudential (LSE: PRU), we see an insurer that has been managed very much in line with its name. The Pru has delivered EPS growth for every one of the past five years, and there’s further growth on the cards for this year and next. Prudential’s dividend yield is modest at around 2.5%, but it never let it get out of control as others did, and consequently has not had to cut it.

And in place of big dividends, Prudential investors have enjoyed a 180% capital rise over the past five years — a period during which the FTSE 100 has managed only 27%. On a predicted 2016 P/E of under 13, I reckon Prudential is still good value today too.

Yet I’m drawn back to Aviva. At Q1 time, CEO Mark Wilson told us that “Aviva’s turnaround is on track and ahead of schedule“, with the company reporting a 14% rise in the value of new life insurance business. Net asset value per share was up to 348p which, on a share price of 525p, is strong for the sector.

Progressive dividend

The acquisition of Friends Life, completed in April, looks like a very good move and should add net inflows of around £0.2bn per year. That’s sure to help the dividend picture, with a rejuvenated 3.9% yield forecast for this year followed by 4.6% in 2016.

RSA and Prudential actually both look like decent investments to me right now, for different reasons. But of these three, my money would still be on Aviva right now.

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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.