Why Old Mutual plc is a great pick for your ISA

We’ve reached that time of year when the sap is rising and investors are reviewing their ISA plans for the coming year. But how should we make the most of the new £15,240 allowance coming our way? For me, ISA investing means solid long-term, blue-chip, dividend-paying shares:

Dependable Insurance

Old Mutual (LSE: OML) has been steady and dependable over the past decade and more, and while the shares have been up and down a bit through times like the financial crisis, the insurer has kept on handing out decent dividends every year.

Having said that, the dividend was reduced for full-year 2016, from 8.9p in 2015 to 6.1p. But that was expected, as the company had already told us it would be taking a “conservative approach” to dividends as it adjusted to a new capital management policy.

For the long term, I think that’s a good move, and progressive increases from the new base level are predicted to reach 8p again by 2018, for a yield of 3.6% on the current share price of 223p.

Adjusted profits and EPS were broadly flat, with funds under management up 30% to £394.9bn, adjusted NAV up and debt down — and I don’t see any justification for the minor sell-off that lopped 2.7% off the share price in morning trading.

There’s still risk in Old Mutual’s focus on South Africa, and the planned break-up of the company into its constituent four parts scheduled for the end of 2018 means there’s going to be an uncertain patch ahead. But chief executive Bruce Hemphill said: “We are confident that the managed separation will unlock and deliver long-term shareholder value“.

And I see a forward P/E for 2017 of 11, coupled with a low PEG of 0.7, as indicative of a good long-term investment here.

Sector champion?

RSA Insurance (LSE: RSA) is a long-term favourite of mine, and I’ve owned the shares in the past. In fact, I’d actually have done better sticking with RSA than going for Aviva these days, with RSA shares up more than 50% since the start of 2016, to 593p.

RSA Insurance suffered in the aftermath of the financial crisis too, and was forced to slash its dividend as low as just 2p per share in 2014 (for a 0.5% yield). But the annual payout bounced back in 2015, and 2016 has just seen a further 52% hike to 16p per share. That’s a 2.7% yield on the current share price, with forecasts suggesting a rise as high as 4.9% by 2018.

We’d also be looking at a modest P/E of around 11.5 by then, with a PEG ratio of an attractive 0.7, so is RSA another good one to stash away in your ISA portfolio now?

I think it clearly is, especially with Stephen Hester at the helm since 2014. Along with 2016 results, Mr Hester reckoned the company was “delivering high quality sustainable results“. He spoke of an ambition to “drive RSA’s performance towards ‘best in class’ levels“.

Market conditions are almost certain to remain tough over the next few years, but I see most of our insurance sector as in the best shape it’s been for years — capital management and liquidity have been shorn of their gung-ho characteristics from recent years of exuberance, and I see a much better managed industry now.

And RSA Insurance, which I reckon really is close to ‘best in class’, should serve investors well in the decades to come.

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Alan Oscroft owns shares of Aviva. 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.