What Everybody Needs To Know About Aviva plc, Old Mutual plc, Standard Life Plc, Direct Line Insurance Group PLC & Hiscox Ltd

These 5 insurers look set to soar: Aviva plc (LON: AV), Old Mutual plc (LON: OML), Standard Life Plc (LON:SL), Direct Line Insurance Group PLC (LON: DLG) and Hiscox Ltd (LON: HSX)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Most of the time there is at least one unloved sector in the stock market. At the moment, the oil and mining sectors are the ones which investors are avoiding, while in the recent past banking stocks were firmly out of favour. However, while not making the headlines all that much, insurance companies are also trading on low valuations and, for long term investors, they appear to offer a superb total return opportunity.

For example, Aviva (LSE: AV) is now a dominant life insurance business following its merger with Friends Life. Considerable synergies are due to be realised from the deal and the process of tying up the two companies is on-track. However, even though Aviva is forecast to increase its bottom line by 11% next year (which is around 50% higher than the wider market’s expected growth rate) it trades on a price to earnings (P/E) ratio of just 10.6. This indicates that there is a potent combination of growth and rerating potential which is likely to propel Aviva’s share price much higher.

Similarly, Standard Life (LSE: SL) is expected to increase its bottom line by 48% this year and by a further 19% next year. Yet despite this it trades on a price to earnings growth (PEG) ratio of just 0.8, which indicates that its shares could continue the 49% rise made in the last five years. Furthermore, Standard Life also offers a yield of 4.4% and, with dividends being covered 1.3 times by profit, its shareholder payouts appear to be highly sustainable.

When it comes to dividends, though, few companies can beat Direct Line (LSE: DLG). It currently yields a whopping 5.3% and, crucially, its payout ratio is due to stand at 73% next year. This should allow the company to make sufficient investment within its business and put its finances on a firmer footing as it begins to cope with the higher insurance premium tax on car insurance, which has the potential to squeeze margins in the short run. This risk seems to be priced in, however, with Direct Line having a P/E ratio of just 13.9.

Meanwhile, Old Mutual (LSE: OML) also has significant rerating potential. It trades on a P/E ratio of only 11.3 and, with its bottom line due to rise by 10% next year, this equates to a PEG ratio of just 1.1, which is relatively low. Furthermore, Old Mutual has an excellent track record of dividend per share growth, with them having risen at an annualised rate of 19% during the last five years, which makes the company’s yield of 4.6% all the more appealing.

Hiscox (LSE: HSX) is another insurer worth buying right now, with the company having significant scope to increase dividends at a rapid rate. That’s because its payout ratio presently stands at just 38% which, even accounting for reinvestment, appears to be rather low. So, while dividends have risen by 8% per annum in the last five years, further brisk increases in shareholder payouts could be on the horizon. This, alongside a P/E ratio of 14.8, indicates that Hiscox is a strong long term buy right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Aviva, DIRECT LINE INSURANCE GROUP PLC ORD 10 10/11P, 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »