Why I’m buying Aviva plc, Standard Life plc & Prudential plc after recent declines

Every investor should have a selection of long-term, buy-and-forget stocks in their portfolio that they can rely on the generate returns even when the going get tough.

And that’s why I’m buying insurers Aviva (LSE: AV), Standard Life (LSE: SL) and Prudential (LSE: PRU) for my portfolio. These three have everything you could ask for in a long-term buy-and-forget investment. They all have well-known reputable brands and operate in a relatively defensive industry (pensions and long-term savings), that’s unlikely to ever see a drop-off in demand. 

In fact, with an ageing population it’s more likely that these pension providers will continue to see a steady stream of business no matter what the economic environment.

Run themselves 

In many respects, these companies can run themselves. While the upper level of management dictates where the company should be going, at the ground level it’s the advisers that do most of the work. This model has kept these businesses alive for more than a century, which actually says quite a lot about these companies. Any business that can stay in operation for more than a hundred years can operate without a single key figurehead and is likely to stay in operation for many years to come.

Simply put, this is why I like Aviva, Prudential and Standard Life. They don’t need babysitting and allow me to concentrate on other areas of my portfolio while generating a steady income and forming the solid foundation for the rest of the portfolio.

Capital return 

Another attractive trait about these three insurers is the fact that that they have a history of returning excess capital to shareholders. 

Take Standard Life for example. Over the past five years, the company has returned 79.8p per share to investors via regular dividends. That’s almost a quarter of the current share price. During the next two years, city analysts expect the company to return an additional 41p per share to investors or 13% of the current share price. Standard life’s shares currently support a dividend yield of 5.7% and trade at a forward P/E of 11.9. 

Similarly, over the next two years Prudential is expected to return around 90p per share to investors, or 7% of the current share price. And while the company’s current dividend yield of 3.2% may not be the most exciting around, Prudential’s pre-tax profit has nearly doubled over the past five years, and if this growth continues, the company’s dividend payout should only rise from here.

Lastly, Aviva, which has had its problems over the years but is now making up for its past mistakes. The company currently supports a dividend yield of 4.9% and City analysts expect the yield to hit 5.5% next year after a per share dividend payout hike of 20%. 

The City currently expects Aviva’s payout to increase by a further 13% for 2017 giving a prospective yield of 6.2%. At present, Aviva’s shares trade at a rock-bottom valuation of 8.4 times forward earnings.  

Looking for income?

If it's income you're after, our analysts have recently discovered a company we believe is one of the market's dividend champions. All is revealed in the Motley Fool's new income report, titled A Top Income Share From The Motley Fool. It gives a full rundown of the company, its prospects and our reasons for buying. 

This is essential reading for income investors.

The report is completely free and will be delivered straight to your inbox. Click here to download the free report today!

Rupert Hargreaves owns shares of Prudential 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.