Shares in FTSE 100 stocks Hiscox (LSE: HSX) and RSA Insurance (LSE: RSA) have slumped over the past few weeks. Investors have been dumping shares in these insurance giants as the coronavirus outbreak devastates the global economy.
The companies, which were once some of the best income FTSE 100 stocks, have also been asked to cut their dividends by regulators.
The regulators hope freezing dividends will free up more cash for financial companies to deal with the coronavirus crisis. While this is a disappointing development, it could be an excellent opportunity for long-term investors.
FTSE 100 stocks on offer
As FTSE 100 stocks go, Hiscox is one of the best. The company is one of the largest insurance businesses in London.
It hasn’t got to where it is today by accident. The group has a reputation in the insurance industry for shrewd and conservative underwriting — essential qualities to make it big in the market.
Unless the company suffers a sudden outflow of talent, it is unlikely that the crisis will cause the business to lose this reputation. As such, Hiscox seems well placed to weather the storm and could potentially come out stronger on the other side.
Insurance is an essential product for many businesses, homeowners and drivers. That’s unlikely to change over the next three to six months.
The crisis could even drive customers to Hiscox rather than other competitors. The company’s size and reputation will help it stand out if peers start to fold due to market uncertainty.
Therefore, long-term investors should look past the company’s recent dividend cut and focus on its long-term potential.
Former income champion
RSA Insurance has also announced that it is has postponed its final dividend payment for 2019.
While this is disappointing, it could be an opportunity for patient investors willing to buy FTSE 100 stocks today.
Shares in the company have fallen around 30% this year, sending the stock down to a five-year low. After this decline, shares in the insurance giant are dealing at a forward P/E of 8.7. That suggests the stock offers a wide margin of safety at current levels.
Further, while RSA has put its dividend on ice for the foreseeable future, the company should reinstate the dividend when the economy returns to normal.
This suggests that investors could be in line for a dividend yield of around 6.6%. That’s assuming the payout is reinstated at 26.4p. Before the coronavirus crisis, City analysts were expecting the dividend to hit this level in 2020.
Like Hiscox, RSA’s greatest asset is its reputation. The company has been successfully providing insurance for around 100 years. This is unlikely to change over the next few weeks and months.
As such, when the economy returns to normal, RSA’s growth should pick up again. That’s why long-term investors should consider taking a closer look at this industry stalwart after recent declines.
When the economy recovers, both of these FTSE 100 stocks should see a healthy recovery, I feel.