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Could Admiral Group plc, Direct Line Insurance Group PLC Or RSA Insurance Group plc Be The Next Takeover Target?

Alan Oscroft — Mon, 14 Sep 2015 14:33:44 +0000

Does the insurance sector seem cheap to you? It does to me, and it certainly seems to look cheap to Mitsui Sumitomo Insurance of Japan after its all-cash buyout offer for Amlin (LSE: AML) — at a 36% premium to its market price on 7 September. The Amlin board said it will recommend the 670p-per-share deal, and that pleased ace investment manager Neil Woodford who sold £30m’s worth in the days after the announcement at a nice profit.

But is Amlin a one-off and is Mr Woodford the only one to spot an insurance bargain? I don’t think so.

Amlin was cheap

Amlin’s current share price of 655p puts the shares on a forward P/E of a little under 16 based on forecasts for the year to December 2015, and drops the predicted dividend yield to 4.3% — on the day before the bid, we were looking at a forward P/E of under 12 with a dividend yield of 5.7%. You might thing the current valuation is a little too high (and I’d agree, and I reckon Mr Woodford did exactly the right thing in taking some profits), but the pre-bid valuation was seriously too low.

Amlin is also now priced at a premium of 80% to net asset value, up from a prior excess of below 40% — and again, that share price just 40% ahead of net assets seemed to undervalue the earnings growth potential of the company to me.

Looking at a few others, at 1,534p, motor insurer Admiral (LSE: ADM) shares are valued at seven times net assets or so. But that’s probably a less meaningful measure for a motor insurance specialist, and we’re also looking at a forward P/E similar to that of Amlin (post-bid) of a bit under 16. There’s a dividend yield of 6% on the cards, but it would barely be covered by earnings.

Admiral is harder to value, I think, but I don’t see predators queuing up for a bite here.

Better value?

But if we have a look at Direct Line (LSE: DLG) at 361p, we see a similar 80% share price premium over net assets as at Amlin post-bid, but a lower forward P/E of only a little over 12. Direct Line has been paying handsome special dividends on top of its normal annual dividend, but even the latter alone looks set to deliver better than 5.5%.

Are any global insurers powerhouses looking at Direct Line and licking their lips? They could do worse.

Finally we come to RSA Insurance (LSE: RSA), whose shares are changing hands at 506p, and that puts them at a mere 30% premium to net assets — even lower than Amlin before Mitsui swooped. RSA’s P/E ratios aren’t obviously low, with a multiple if 17 for this year dropping to 15 based on a forecast 11% rise in EPS in 2016. And predicted dividend yields are relatively low at 2.1% this year and 2.9% next, but they would be covered 2.8 times by earnings this year and 2.3 times next — and that leaves room for the dividend yield to be doubled while still sticking to Amlin’s levels of cover.

A long-term approach

On the whole, I certainly see bargains in the insurance sector. I wouldn’t buy in the hope of takeover bids as that’s something that really can’t be predicted at all. But I wouldn’t be surprised to see more consolidation as the sector continues its recovery — and if you buy with a Foolish long-term view, a bid might even see your ambitions realised quicker than you think.

The post Could Admiral Group plc, Direct Line Insurance Group PLC Or RSA Insurance Group plc Be The Next Takeover Target? appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. 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.

Could Esure Group PLC, Direct Line Insurance Group PLC And Jardine Lloyd Thompson Group plc Be Next After Amlin plc Takeover?

Peter Stephens — Tue, 08 Sep 2015 11:08:21 +0000

Today’s bid of 670p per share for Amlin (LSE: AML) has caused investors to wonder whether other insurers could be next. Certainly, the bid appears to be rather generous, valuing Amlin at £3.5bn versus a closing valuation of under £2.5bn yesterday. And, with the company continuing to struggle to post positive earnings growth, it appears as though the need to diversify risk and expand geographically means that disappointing short term forecasts do not matter so much to potential suitors. This, then, means that bids for other insurers could be on the cards.

Clearly, Amlin is a successful business that has delivered a superb level of dividends in previous years. And, with an excellent management team and relatively stable business model, its appeal to rivals is very evident.

However, there are other non-life insurance companies which offer similar attributes. For example, Direct Line (LSE: DLG) trades on a price to earnings (P/E) ratio of just 11.4 and, while its earnings are due to fall by 14% next year, the last few years have shown that the company is capable of delivering upbeat growth numbers as standalone entity.

In fact, Direct Line has posted annualised growth of 12.3% per annum during the last three years and, with its shares offering a yield of 5.8% from a dividend that is covered 1.3 times by profit, it continues to be a superb income play. Furthermore, Direct Line trades on a price to book (P/B) ratio of just 1.7, which indicates that its shares could be acquired at a relatively low valuation.

It’s a similar story with Esure (LSE: ESUR). It currently trades on a P/E ratio of just 13 despite its share price having risen by 17% since the turn of the year. And, like Amlin and Direct Line, it appears to have confidence in its future earnings capacity since it pays out 75% of profit as a dividend, which means that it currently yields 5.7%. Certainly, it has struggled to fully offset the cost of personal injury claims, which put a dampener on its most recent set of results. But, with a sound balance sheet and low valuation, it could be a bid target.

Of course, Jardine Lloyd Thompson (LSE: JLT) has been a very active acquirer in recent years, with its business expanding through a series of purchases since its creation in 1997 (when Jardine Matheson merged with Lloyd Thompson). Today, it remains a very appealing business, with a wide range of divisions operating across the globe. And, with its earnings having risen in each of the last five years, giving an annualised rate of growth of over 10%, JLT appears to be a relatively stable company.

On the face of it though, a bid seems unlikely. That’s because JLT has a P/E ratio of 18.9 and a P/B ratio of 7.4. Both of these figures indicate that it is overpriced but, when it is considered that JLT is expected to increase its earnings by 14% next year, has an excellent track record of growth and could provide diversity to a sector peer, a bid could certainly be possible in the medium term.

So, Direct Line, Esure and JLT all appear to be worth buying and, even if bids do not come along, the returns from all three stocks should be very encouraging.

The post Could Esure Group PLC, Direct Line Insurance Group PLC And Jardine Lloyd Thompson Group plc Be Next After Amlin plc Takeover? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Amlin and Direct Line Insurance Group. The Motley Fool UK owns shares of Jardine Lloyd Thompson. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Amlin plc Soars By A Third On 670p-Per-Share Takeover Offer

Peter Stephens — Tue, 08 Sep 2015 08:23:47 +0000

Shares in Amlin (LSE: AML) are around a third higher today after the company became the subject of a 670p per share all-cash takeover offer from Japanese sector peer, Mitsui Sumitomo Insurance Company. The deal values Amlin at around £3.5bn and represents a 36% premium to its closing price from 7 September of 492.5p and a 32.9% premium to the volume weighted average closing price per Amlin share for the month prior to 7 September.

Crucially, the directors of Amlin consider the deal to be ‘fair and reasonable’ and will recommend that the bid is accepted by the company’s shareholders. In addition, Invesco and Majedie Asset Management have also agreed to vote in favour of the deal, which means that around 16% of Amlin’s shareholders are already openly backing the takeover. And, while regulatory approval is needed, the takeover is expected to be completed in the first quarter of 2016.

Clearly, an offer for Amlin was more likely than for most businesses due to the exceptionally low valuation on which its shares were trading. For example, Amlin’s price to earnings (P/E) ratio stood at just 11.8 prior to the bid, with its price to book (P/B) ratio of 1.38 also an indicator that its shares offered excellent value for money. Furthermore, a dividend yield of 5.7% indicates that Amlin’s shares were cheap and susceptible to bids from rivals seeking to expand and/or diversify their risk profiles.

On the face of it, the deal appears to be a rather generous one since it values Amlin at a significant premium to yesterday’s share price of 493p. And, upon further inspection, this appears to be very much the case. That’s because the offer values Amlin at a P/E ratio of 16 and a P/B ratio of 1.96 – both of which are relatively high when Amlin’s near-term prospects are taken into account.

For example, Amlin is forecast to post a fall in its bottom line of 12% in the current year, followed by a further decline of 7% next year. This may have caused investor sentiment to weaken somewhat in the short run, although a major share price fall was relatively unlikely due to Amlin’s super-high yield, which should have provided support for the company’s valuation. Still, with Amlin’s shares having risen by 25% in the last three years, further capital gains could have proved to be somewhat elusive.

Therefore, the offer appears to be a very good one for investors in Amlin. Certainly, they will be losing a top notch income stock and, while a yield of 5.7% is available elsewhere in the FTSE 350, the reliability that Amlin offers regarding its dividends is rather more difficult to find.

However, all investors in Amlin will make a capital gain on the deal and, alongside dividends received, this means that investing in Amlin has been a worthwhile exercise. And, with the FTSE 100 having fallen by 1,000 points in recent months, the deal provides a useful cash boost through which to buy another high quality company at a deeply discounted price.

The post Amlin plc Soars By A Third On 670p-Per-Share Takeover Offer appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Amlin. 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.

5 Potential Takeover Targets: RSA Insurance Group plc, Amlin plc, Hiscox Ltd, Lancashire Holdings Limited and Beazley plc

Jack Tang — Thu, 13 Aug 2015 11:31:05 +0000

The insurance industry is seeing a wave of consolidation activity, as many insurers seek to bulk up in the light of intensifying competition and low investment returns. Friends Life was acquired by Aviva (LSE: AV) late last year, whilst Catlin and Brit were acquired by North American insurers this year.

Zurich is said to be considering a bid for RSA (LSE: RSA), the UK’s second largest general insurer. Rumour have been spreading that Zurich intends to price RSA at 525 pence a share, but a much better than expected set of results for the first half of 2015 means RSA shareholders are likely to reject a bid that values its shares at less than 600 pence. Operating profit rose 84% to £259 million, which was more than £50 million higher than analysts’ expectations, and shows the insurer’s recovery is firmly embedded.

Further consolidation in the insurance industry is likely as insurers seek to benefit from scale economies and greater efficiency. Lowering costs and greater diversification are particularly important as Europe’s stricter Solvency II capital rules are set to take effect at the start of 2016.

Takeover targets

Market conditions are conducive to takeovers, as insurance stocks benefit from low price-to-earnings and price-to-book valuations, and low interest rates mean the cost of financing acquisitions is cheap. Although competition is intensifying, profitability amongst many insurers, particular those underwriting speciality lines, are still relatively high when compared to historical averages. Consolidation will likely lead to a withdrawal of capacity in the market and have a positive effect on premiums and profitability in the industry.

Lloyds of London and Bermuda-based insurers are the most attractive takeover targets, because of their focus on speciality lines of insurance. The unique nature of the risks they underwrite should mean that they will benefit more from diversification and scale. As part of a larger firm, they can carry less capital, and have better opportunities to expand their product lines and underwriting capabilities.

Here are four Lloyds of London insurers:

Amlin (LSE: AML) has fared relatively resiliently with softening market conditions. There are initial signs that its claims ratio is improving and it continues to benefit from a paucity of major catastrophe losses. Renewal retention rates are near 90%, which underscores its loyal customer base and its focus on long term risks.

Hiscox (LSE: HSX) is the most expensive of the four on a forward P/E basis. Its forward P/E is 15.0 and it currently yields only 2.7%. But, because of its fast growing retail speciality insurance business, the insurer’s earnings growth is likely to outpace its competitors.

Lancashire Holdings (LSE: LRE) is a particularly attractive takeover target because of its industry-leading underwriting profitability. Its combined ratio, which is the percentage of premiums earned used for settling claims and paying operating costs, was 75.1% for the first half of 2015.

Although Lancashire’s combined ratios have worsened recently, they remain well above many of its peers. Strong free cash flow generation and healthy solvency ratios means a potential bidder would have little to worry about the increase in debt needed to fund the acquisition.

Beazley (LSE: BEZ) has been offsetting the decline in profitability from its Lloyds insurance syndicate by growing premiums in its locally underwritten US business. In contrast to many of its peers, the insurer is expecting to achieve moderate growth over the next few years.

It’s difficult to tell which insurer will be taken over, but with valuations so low, these insurance stocks are worth buying even in the absence of a potential takeover bid.

The post 5 Potential Takeover Targets: RSA Insurance Group plc, Amlin plc, Hiscox Ltd, Lancashire Holdings Limited and Beazley plc appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended Beazley. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

5 Shares Yielding 5% Or More: BHP Billiton plc, Amlin plc, Lancashire Holdings Limited, SSE PLC & Greencoat UK Wind plc

Jack Tang — Fri, 10 Jul 2015 09:09:04 +0000

BHP Billiton (LSE: BLT) is likely to face a shortfall in operating cash flow to fund its dividends and capital spending requirements. So far, though, BHP has committed to its dividend plan. But with net debt steadily rising, the miner would at some point need to re-prioritise lowering its level of indebtedness, unless commodity prices make a substantial recovery from today’s levels.

The volatility of commodity prices makes mining companies less attractive income plays. But BHP’s size and financial strength means that its dividend is safe for at least another two or three years. And as the company is increasingly judged by its yield, which stands at 6.5%, shares in BHP Billiton are unlikely to fall much further in the short to medium term.

Amlin

Business-focused insurer Amlin (LSE: AML) has recently seen a benign level of claims. In 2014, it achieved a combined ratio of 89%. A combined ratio of below 100% represents underwriting profits.

But with the market softening; underwriting profitability going forward is likely to be significantly lower. Nevertheless, the insurer’s lean operating cost base and its stable combined ratios show it is competitively placed in the market.

Analysts expect its earnings will fall by 14% this year, which implies a forward P/E of 11.9. Its prospective dividend yield of 6.0% is particularly attractive, and it is covered by 1.4x earnings.

Lancashire Holdings

Diversified insurer Lancashire Holdings (LSE: LRE) had a combined ratio of 68.7% in 2014, which reflects an even higher level of underwriting profitability per dollar of premiums earned.

Including the value of special dividends, analysts expect Lancashire is set to yield 9.9% this year, and 9.1% for 2016. Lancashire is able to pay substantially all of its earning over the next few years; because it is in a strong capital position, and underwriting profitability had been particularly robust.

According to current analysts’ forecasts, Lancashire is currently trading at a forward P/E of 10.3, despite estimates of a 28% decline in underlying earnings as the market softens.

SSE

SSE (LSE: SSE) is widely considered as a dividend stalwart, as the electric utility company almost invariably pays a dividend yield in excess of 5% every year. Because of lower wholesale electricity prices, electricity generation margins are likely to continue to worsen. Analysts expect adjusted EPS will fall by 11% to 110.1 pence for 2015/6. This will give SSE a modest P/E of 13.6 and its expected dividend yield will be 5.8%.

The main attraction of SSE is that half its underlying earnings comes from its regulated assets, which generate stable cash flows, even when wholesale electricity prices fall or when electricity demand slumps. This helps to ensure that its dividend is fully funded, even though its dividend cover on earnings is relatively low, estimated at 1.2x on 2015/6 forecasts.

Greencoat UK Wind

Greencoat UK Wind (LSE: UKW) is an investment company focused on onshore wind farms. The end of the Renewable Obligation Certificate (ROC) subsidy scheme will no doubt hurt the expected returns of new onshore wind projects in the longer term, but this should also increase the value of its existing portfolio of wind assets. In addition, the newer contract-for-difference (CFD) scheme are not as bad as they initially seem, and investment returns should continue to be relatively attractive.

Because wind farms receive a significant proportion of their revenues through subsidies, their cash flow is typically more stable than fossil fuel electricity producers. This also allows Greencoat to pay out almost all of its earnings to its shareholders through dividends.

Greencoat currently supports a dividend yield of 5.4%.

The post 5 Shares Yielding 5% Or More: BHP Billiton plc, Amlin plc, Lancashire Holdings Limited, SSE PLC & Greencoat UK Wind plc appeared first on The Twelfth Magpie.

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Jack Tang has no position in any shares mentioned. 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.

Is It Safe To Buy Aviva plc, Amlin plc And Aldermore Group PLC?

Peter Stephens — Tue, 30 Jun 2015 15:01:29 +0000

With the possibility of a Grexit making headlines across the media, investors are understandably becoming increasingly concerned about risk. Certainly, the long-term future for the FTSE 100 remains bright, with the UK and global economy continuing to move from strength to strength. However, in the short run, share prices are likely to be volatile. As such, it could make sense to ensure that the stocks in your portfolio, while not without risk, have sufficient reward prospects to warrant their purchase and subsequent holding.

Great Value

One stock that most certainly offers this is Aviva (LSE: AV) (NYSE: AV.US). It may have a beta of 1.2, which means that its shares will probably be more volatile than those of the wider index, but it also offers a very wide margin of safety. For example, Aviva, despite being a dominant player in the life insurance market and having turned its performance around since its annus horibilis of 2012, trades on a price to book (P/B) ratio of just 1.7. This indicates that its shares could move significantly higher and that, on the downside, the risk of a substantial fall in valuation is somewhat limited.

Growth Potential

That’s because Aviva is expected to boost its earnings by 12% next year, which is around twice the growth rate of the wider market. Therefore, it appears able to command a much higher share price, although its growth prospects are somewhat behind those of banking stock, Aldermore (LSE: ALD). It may trade on a price to earnings (P/E) ratio of 14.9 which, compared to a number of its larger banking rivals, is relatively high. However, with Aldermore’s bottom line expected to rise by 49% this year and by a further 31% next year, appears to have a considerable margin of safety on offer that, as with Aviva, limits downside and offers plenty of upside.

In addition, Aldermore has a strong asset base and, while it lacks the size and scale of a number of its larger banking peers, is more nimble and better able to quickly adapt to changing circumstances. And, with the situation in the Eurozone being fluid at the present time, this could prove to be a major advantage moving forward and aid Aldermore in delivering on its optimistic medium term forecasts.

Yield

Of course, an indication of a company’s defensive profile and lower risk status is its dividend yield. And, on this front, Amlin (LSE: AML) offers excellent prospects, with the insurance company currently trading on a yield of 6.1%. That’s among the highest yields in the FTSE 350 and, best of all, there is considerable scope for dividends to increase. That’s because Amlin currently pays out 71% of profit as a dividend, which is not relatively high and, as such, is expected to increase shareholder payouts next year by 3.7%.

Looking Ahead

Clearly, the concerns surrounding a Grexit are causing investors to become rather nervous regarding the prospects for shares. However, the likes of Aviva, Aldermore and Amlin offer significant upside, with their value, growth prospects and yield (respectively) indicating that they offer a sufficiently wide margin of safety to warrant investment at the present time.

The post Is It Safe To Buy Aviva plc, Amlin plc And Aldermore Group PLC? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Amlin and 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.

5 Of My Favourite Income Stocks: Admiral Group plc, Esure Group PLC, Amlin plc, Direct Line Insurance Group PLC And Lancashire Holdings Limited

Rupert Hargreaves — Wed, 10 Jun 2015 11:00:22 +0000

Thanks to their asset light, high-return-on-equity business model, insurance companies can be some of the most cash generative businesses around.

And realising this fact early on in his career, helped billionaire Warren Buffett build the business empire he presides over today.

In particular, during the late 60s Buffett paid around $9m for two small, well-run insurance companies, National Indemnity and its sister company, National Fire & Marine.

Today, after five decades of growth and business reinvestment, these two companies are worth $111bn, a value which exceeds that of any other insurer in the world.

Of course, I’ve cherry-picked this example, but it illustrates how lucrative insurance investments can be.

That’s why insurers Admiral (LSE: ADM), Esure (LSE: ESUR), Amlin (LSE: AML), Direct Line (LSE:DLG) and Lancashire Holdings (LSE: LRE) are my five top income stocks.

Best of breed

Lancashire is the perfect example of a well-run insurer that looks after its investors. Strict insurance underwriting controls have allowed the company to return around 100% of income to shareholders during the past five years.

Including both dividends and capital growth Lancashire’s shares have returned approximately 500% since coming to market during 2006.

Lancashire’s shares aren’t expensive, either. The company currently trades at a forward P/E of 10.7. City analysts believe that Lancashire’s dividend yield will top 9.5% this year as the company continues to return the majority of its income to investors.

Dividend champion

Over the years, Admiral has built a reputation for being one of the FTSE 100’s dividend champions.

Although the company’s dividend yield lags that of Lancashire, it’s still highly impressive. Over the past five years, Admiral has returned a total of £1.1bn to investors via both regular and special dividend payouts. This works out as around 90% of Admiral’s net income generated over the period.

City analysts have pencilled in a dividend yield of 6.1% for Admiral this year and 6.5% during 2016. The company currently trades at a forward P/E of 15.7.

Catching up

Direct Line and Esure have only been public companies for a couple of years, but they’re moving rapidly to build the same dividend appeal as Admiral and Lancashire.

Direct Line is planning a special dividend of 27.5p per share to investors this year following the disposal of its international division. Including the company’s regular payout, Direct Line’s cash return to investors will be in the region of 44.3p per share this year, a yield of 12.9%.

Analysts expect Direct Line’s dividend yield to fall back to 4.6% next year.

Esure is set to support a dividend yield of 6.0% this year and 6.3% during 2016.

According to City projections, Esure’s dividend payout will be covered 1.3 and 1.2 times by earnings per share during 2015 and 2016 respectively. The company currently trades at a forward P/E of 13.4.

Takeover play

Lloyds of London insurer, Amlin is a great play on the wave of mergers currently sweeping the insurance industry.

Including a special dividend of 34p per share issued during April, Amlin’s shares have returned 12.3% year to date, outperforming the FTSE 100 by 9%. Excluding special dividends, City analysts expect Amlin’s shares to yield 5.9% this year and 6.2% during 2016. The company currently trades at a forward P/E of 11.8.

The post 5 Of My Favourite Income Stocks: Admiral Group plc, Esure Group PLC, Amlin plc, Direct Line Insurance Group PLC And Lancashire Holdings Limited appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares of Lancashire Holdings. 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.

Why Meggitt plc, Legal & General Group Plc And Amlin plc All Offer Splendid Value For Money

Royston Wild — Tue, 02 Jun 2015 15:12:08 +0000

Today I am looking at three stocks that should be on the radar of all savvy bargain hunters.

Meggitt

Following a bumper start to the year, shares in defence play Meggitt (LSE: MGGT) have trekked south since February and were recently at their lowest for this year around 505p. However, I believe this weakness represents a fresh buying opportunity as improving economic conditions in the West boosts defence outlay, helped by rising geopolitical instability across the globe. Allied to this, solid civil aircraft orders are also likely to keep component sales ticking steadily higher.

These factors are expected to drive earnings at Meggitt 6% higher in 2015, and an extra 8% advance is chalked in for next year. These figures leave the business changing hands on ultra-attractive P/E multiples of 14.1 times and 13.1 times for 2015 and 2016 correspondingly — any readout below 15 times is widely considered stellar value for money.

And with revenues expected to soar higher once more, the Dorset business’ progressive dividend policy should receive a welcome shot in the arm. Indeed, last year’s 13.75p-per-share reward is expected to gallop to 15p in the current period, before rising to 16.2p in 2016. Consequently a handy yield of 2.9% for 2015 rises to a very decent 3.2% for next year, and I expect further meaty rises in the coming years as cash generation takes off.

Legal & General Group

I believe that life insurance leviathan Legal & General (LSE: LGEN) is a brilliantly-priced pick for both growth and income seekers. The business is successfully hurdling regulatory changes in the UK, its revamped product portfolio allowing its clients to benefit from new ‘pension freedom’ rules, legislation that is expected to drive savings rates to the stars in the coming years. And further afield, Legal & General’s expansion programme in the US and Asia promises bountiful returns.

Legal & General has punched tremendous, double-digit earnings expansion in recent years, and this trend is expected to keep running with a 12% rise currently pencilled in for 2015. Growth is anticipated to slow next year, although a 9% projected advance is not to be baulked at. And these forecasts create appetising P/E ratios of 14 times and 13 times for 2015 and 2016 correspondingly.

With cash heading comfortably through the roof, in my opinion Legal & General is one of the most attractive dividend picks currently available. The company has a terrific record of offering chunky year-on-year payout rises, and is expected to lift 2014’s dividend of 11.25p per share to 13.2p in 2015, and again to 14.6p in the following period. Consequently a market-mashing yield of 5% for this year charges to an even-better 5.5% for 2016.

Amlin

It is certainly true that a backcloth of intense competition — combined with the effect of low interest rates and unfavourable currency movements — is likely to keep blood pressure levels at Amlin (LSE: AML) uncomfortably high in the near-term. Indeed, gross written premiums fell 1.3% in January-March, to £1.26bn as a result of these pressures. Still, for more patient investors I believe the London business remains a lucrative stock selection, underpinned by its pan-global presence.

The aforementioned problems currently facing Amlin are expected to keep the bottom line in retreat for a little while longer, and the City expects the insurance play to follow last year’s 21% earnings decline with a further 14% slide in 2015. But expectations of a 3% dip in 2016 suggest that conditions could be on the brink of turning for the better. Moreover, these forecasts also create decent value for money, with Amlin sporting earnings multiples of just 11.6 times for 2015 and 12.3 times for 2016.

But it is in the dividend stakes where Amlin really sets itself apart from the competition. The company’s weighty capital pile is expected to propel a payment of 27p per share last year to 29.1p in 2015, producing a vast yield of 6%. And this rises to a lip-smacking 6.2% for next year amid predictions of a 30.3p dividend.

The post Why Meggitt plc, Legal & General Group Plc And Amlin plc All Offer Splendid Value For Money appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. 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.

3 Insurers Yielding 4% Or More: Direct Line Insurance Group PLC, Amlin PLC And Esure Group PLC

Jack Tang — Fri, 22 May 2015 15:08:36 +0000

Insurance stocks can make a valuable contribution to your dividend portfolio. Unlike banks, insurance companies tend to be less cyclical, as the demand for insurance is generally stable over the business cycle. This stable demand base and the less risky investment strategy employed by them allows them to generate relatively stable patterns of earnings, which in turn enables them to make consistent dividend payments.

We will look, in particular, at three general insurance companies, because of their attractive dividend yields and relatively low P/E valuations. The low valuations attached to these companies partly reflects the uncertainty surrounding the impact of Solvency II on their capital ratios, which could affect their dividend payouts. Difficult market conditions is another factor, as premiums remain low because of aggressive competition and as customer retention falls. Although competition is expected to remain fierce, there are some signs of a bottoming in the market, particularly in UK motor, as some insurance companies are looking to withdraw capacity from the market.

Direct Line Group

Direct Line (LSE: DLG) has a regular dividend yield of 4.0%, based on its regular dividend of 13.2 pence per share paid in 2014. But with the cash proceeds of £430.5 million from the sale of its international division, Direct Line does appear to be holding excess capital. This could mean the group could quite likely make further special dividend payments. It had made two special dividends in 2014, totalling 14 pence per share. Direct Line trades at a forward P/E ratio of 12.1.

Despite having two very well-known brands, including Direct Line and Churchill, the group has seen its market share fall in its motor and home insurance markets. But as the insurer ceded market share to its competitors, its profitability had improved significantly. This was also helped by its cost-cutting programme, with expenses falling faster than the net reduction in premiums. Its combined ratio, a measure of underwriting profitability, rose 0.2 percentage points to 95.0% for 2014. This follows a 2.6 percentage point improvement in the previous year. A combined ratio of below 100% represents an underwriting profit. Management expects the combined ratio, absent from major weather events, would lie between 94% and 96% in 2015.

Amlin

Amlin (LSE: AML), unlike the other two insurers, focuses on commercial and speciality lines of insurance. Similar to home and personal motor insurance markets, pricing has come under pressure, with average rates falling. However, underwriting profitability is generally stronger, because of the more complex nature of risks insured. Amlin produced a combined ratio of 89% in 2014, having worsened from 86% in 2013. The insurer paid a regular dividend of 27.0 pence per share in 2014, which represents a dividend yield of 5.6%. Amlin trades at a forward P/E ratio of 11.6, and has a forward dividend yield of 5.9%. Its dividend cover for 2015 is estimated to be 1.46x.

esure Group

esure Group (LSE: ESUR), with a market capitalisation of £1.02 billion, is the smallest of the three. Similar to Direct Line, esure focuses on motor and home insurance markets. esure’s combined ratio worsened by 2.5 percentage points to 92.4% in 2014, as the cost of claims rose. Although earnings per share is expected to fall by 4.5% in 2015, the earnings decline is modest and temporary. Its valuation is attractive though, especially with the prospect of premium rate increases in the UK motor market. The insurer’s forward P/E ratio is 12.8, and has a forward dividend yield of 6.4%. Dividend cover is expected to fall to 1.21x, from 1.29x in 2014.

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3 Dividend Darlings Set To Ignite: Barclays PLC, Legal & General Group Plc And Amlin plc

Royston Wild — Tue, 12 May 2015 14:54:44 +0000

Today I am looking at three big-cap beauties carrying terrific dividend prospects.

Barclays

With Barclays (LSE: BARC) (NYSE: BCS.US) announcing more positive quarterly results late last month — adjusted pre-tax profit surged 9% during January-March, to £1.8bn — suggestions that the firm has finally waved goodbye to the travails of previous years has gained yet more traction.

City analysts currently expect the bank to punch substantial earnings growth of 36% and 21% in 2015 and 2016 respectively, and dividends are subsequently expected to get rolling again after being locked at 6.5p per share for the past three years. Rewards of 8.1p for 2015 and 10.7p for next year are currently predicted.

This stonking growth is expected to shove the yield from a respectable 3.1% this year to 4.1% for 2016, and I expect similarly-high yield expansion in the coming years as the UK economic recovery powers retail revenues. On top of this, Barclays’ Transform plan is providing a double-whammy in the form of improving Barclays’ footprint in the white-hot digital banking arena, as well as boosting the cash pile by stripping out costs.

While it is true that various ongoing legal problems, from the mis-selling of PPI through to investigations over currency manipulation in the US, should continue to dent the balance sheet, I reckon that Barclays’ strong capital base — the firm’s CET1 ratio rose to a healthy 10.6% in the first quarter, up from 10.3% at the close of 2014 — should undergird robust dividend growth.

Legal & General Group

I am convinced that swelling client activity at Legal & General (LSE: LGEN) bodes extremely well for dividend chasers. The company has proved highly successful in evolving its product ranges in line with changing regulatory demands and demographic trends, while expansion into lucrative territories such as the US and Asia is also paying off handsomely. Indeed, Legal & General reported last week that total assets jumped 17% during the first quarter, to £736.8bn.

Not surprisingly the abacus crunchers expect Legal & General to keep on churning out exceptional earnings growth, and expansion in the region of 12% and 9% is estimated for 2015 and 2016 respectively. Not surprisingly these figures should give the insurer’s bubbly dividend policy a strong shot in the arm, and the business is predicted to lift last year’s 11.25p per share payout to 13.2p this year and to 14.6p in 2016.

As a consequence an excellent yield of 4.9% for this year jumps to an even-more impressive 5.4% for 2016. With Legal & General also continuing to generate shedloads of readies — net cash generation climbed an extra 8% in the first quarter, to £326m — I reckon the insurance leviathan is set to deliver market-bursting dividends for some time to come.

Amlin

Like its insurance sector peer, I believe Amlin (LSE: AML) is also poised to keep its ultra-generous dividend policy on track in the coming years. Even though rising competitive pressures pushed pre-tax profit 21% lower last year, to £258.7m, the firm’s bullish long-term outlook encouraged the business to not only hike the ordinary dividend 4% to 27p per share, but also to declare a special dividend of 15p.

With top-line troubles expected to persist in the near term, the City expects Amlin to suffer earnings dips of 15% in 2015 and 2% in 2016. Still, these numbers represent an improving outlook in the company’s key markets, and facilitated by its robust capital position Amlin is expected to keep dividends moving swiftly higher during the medium term at least.

Indeed, last year’s ordinary dividend is predicted to rise to 28.3p in the current 12-month period, and again to 29.6p in 2016. Consequently the yield bursts from an eye-watering 6.1% for 2015 to 6.4% next year. At these levels I believe that Amlin is hard to ignore for those seeking delicious dividend flows.

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