The best way to build wealth is to invest for the long term: buy a basket of stocks or funds that you can put away and forget about while they steadily grow and compound wealth. Aviva (LSE: AV), Prudential (LSE: PRU), Standard Life (LSE: SL) and Admiral (LSE: ADM) are four companies that display all the qualities of buy-and-hold investments, which will help you build wealth over the long term.
Indeed, over the past few years, these companies have all proven themselves to be better than the competition by achieving above-average rates of earnings growth while offering some of the most impressive dividend yields around. What’s more, on a total return basis, all four of these companies have outperformed the wider FTSE 100 year-to-date. Including dividends, Aviva has returned 9.5% this year, Prudential has returned 7.4%, Standard Life has returned 5.0% — including the special dividend paid earlier in the year — and Admiral has racked up the best performance of the group with a total return of 30.2%. In comparison, the FTSE 100 has only returned 0.4% this year. And this performance looks set to continue as all four of these insurers are set to report high single, to mid double-digit earnings per share growth next year.
Prudential, in particular, is set to report earnings per share growth of 14% for full-year 2015 and 9% EPS growth for 2016. Based on these targets the company’s shares are currently trading at a forward P/E of 13.9 and a 2016 P/E of 12.7, which looks cheap when you take into account Prudential’s historic growth. During the past five years, Prudential’s pre-tax profit has doubled from £1.8bn to £3.6bn. The company’s shares support a dividend yield of 2.6%, and the payout is covered two-and-a-half times by earnings per share.
Aviva has staged a dramatic recovery over the past four or five years and now the company is beginning to grow again. EPS are set to contract by 11% this year, as the higher number of shares from Aviva’s acquisition of Friends Life weighs on this key metric. Nonetheless, next year Aviva is expected to return to growth with City analysts predicting EPS growth of 12% for the company, indicating that the shares are trading at a 2016 P/E of 10.2. Aviva currently supports a dividend yield of 4.1% and the payout’s covered twice by EPS.
Standard Life is the most expensive of these four insurers and pension managers, but the company’s growth is worth paying for. Standard Life’s EPS are set to grow by 48% this year, and a further 17% during 2016. The company’s shares currently trade at a forward P/E of 17.8, but when you factor in the projected earnings growth, Standard Life trades at PEG ratio of 0.4 — a PEG ratio of less than one signals that the shares offer growth at a reasonable price.
Admiral’s shares are only slightly cheaper than those of Standard Life at present. However, it’s the company’s dividend that’s really attractive to investors. Admiral’s shares currently trade at a forward P/E of 16.2 and City analysts believe Admiral’s dividend payouts will equal a yield of 5.8% this year and 5.9% for 2016. Over the past five years, the group has returned a total of £1.1bn to investors via both regular and special dividends. This works out as around 90% of Admiral’s net income generated over the period.
