With this in mind, I’m going to outline three of my favourite FTSE 100 dividend stocks that all yield more than 5% and I believe you can buy and hold forever.

Unforeseen risks

My first pick is RSA Insurance (LSE: RSA). The insurance company tends to fly below most income investors’ radar, but I believe the stock deserves a position in your portfolio. 

Over the past six years, RSA’s dividend has grown at a compound annual rate of 16%. During the same time frame, earnings per share have grown at a compound annual rate of 22.3%.

City analysts expect this trend to continue. They’ve pencilled in earnings growth of 25% for 2019, followed by growth of 19% for 2020. The dividend is expected to grow by 20% and 19%, respectively, in these years.

One of the reasons why I like RSA as an income investment is that the company provides an essential service. For most people, property insurance is a crucial expenditure, and the market is only growing.

With this being the case, I think RSA should be able to continue to grow in line with the market for many years to come and distribute a healthy amount of its income to investors along the way.

Defensive income

My second buy-and-hold-forever income play is Sainsbury’s (LSE: SBRY). While shares in this supermarket giant have come under pressure recently, due to concerns the group is struggling for direction, I think long-term prospects for this company are bright.

Food and household supplies are necessities and, as one of the largest retailers in the country, Sainsbury’s will always have a captive audience.

Still, as noted above, the group’s growth is something to worry about. Analysts think earnings per share will decline by 16% in 2019, due to rising costs and falling sales. However, the company’s dividend is covered 1.9 x earnings per share, which suggests the distribution is safe for the time being.

With a dividend yield of 5.2% at the time of writing, investors will be paid to wait for the company’s turnaround to take hold. On top of this, the stock is currently trading at an attractive multiple of just 10.1 times forward earnings, around 30% below the industry average.

Booming market

My final income pick is DS Smith (LSE: SMDS). Over the past six years, this packaging producer has built itself into one of the largest in Europe, through a combination of sensible acquisitions and organic growth.

During this time, net profit has grown at a compound annual rate of 14%, and revenue has increased at an annual rate of 9%. Shareholders have been exceptionally well rewarded since 2014 as well. The dividend has grown at a compound annual rate of 12%. 

As long as DS keeps doing what it has been doing successfully for the past six years, I think the stock will continue to produce impressive returns for shareholders for the foreseeable future.

Today, you can own a stake in this company for just 10 times forward earnings. City analysts are predicting earnings growth of 26% for its current financial year. The shares currently support a dividend yield of 4.7%.

The post 3 FTSE 100 dividend stocks yielding 5%+ I’d buy and hold forever appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended DS Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Shares in Carnival have fallen recently after the company warned on profits at the end of September. Rising fuel costs have impacted profit margins, and economic uncertainty is weighing on revenue growth.

As a result, management now expects the company to earn between $4.23 and $4.27 per share for 2019, down from its earlier forecast of $4.25 to $4.35 per share.

Strong brand

Carnival’s recent trading update is disappointing, but I’m optimistic that the company can recover over the next 12 to 24 months.

In my opinion, Carnival is well run and has plenty of scope for growth over the next 10 years as the global cruise industry continues to grow. The company has always had to deal with volatile fuel costs and economic uncertainty. However, it has still managed to grow earnings per share at a compound annual rate of around 26% over the past six years.

Put simply, I think the market is concentrating on the company’s short-term headwinds, and overlooking its long-term potential. That’s why I believe the shares could be a great addition to your portfolio after recent declines.

Carnival is currently dealing at a forward P/E of just 9.6, around 20% below its five-year average. On top of this, the stock current supports a market-beating dividend yield of 4.8% compared to the FTSE 100 average of 4.5%.

Recovery complete

As well as Carnival, I also reckon shares in insurance group RSA (LSE: RSA) could jump by 20% or more from current levels.

As I’ve explained before, during the past five years, RSA has been through one of the most intensive restructurings in its long history. It now looks as if the business is back on its feet. The City is projecting earnings per share growth of 26% for the company in 2019, followed by growth of 18% in 2020.

Based on these numbers, the stock is dealing at a forward P/E of 13 and PEG ratio of 0.73, indicating shares in RSA currently offer growth at a reasonable price.

For the past few years, shares in this international general insurer have changed hands for as much as 15 times forward earnings. A return to this level implies the stock could jump to 618p, up 16% from current levels.

As well as this capital growth potential, the stock supports a dividend yield of 4.8% (based on analyst estimates for 2019). When combined with the company’s potential for capital growth, this gives income investors a potential return of 20% or more over the next 12 to 24 months.

And I’m even more optimistic about RSA’s income potential from 2020 onwards.

Now that RSA’s recovery is almost complete, analysts are expecting the group to ramp up distributions to shareholders. The full-year payout is expected to expand by as much as 22% in 2019 and 18% in 2020.

If the firm meets these targets, the stock will offer a yield of as much a 5.6% by 2020. Dividend cover of 1.6 times by earnings per share leaves plenty of room for further growth from this level as well.

The post £5k to invest? I think these 2 FTSE 100 dividend stocks could jump 20% appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares in Carnival. The Motley Fool UK has recommended Carnival. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Clients can pay as much as 4.5% in initial advice fees with further fees of 1% or more per annum levied on funds managed by the group. Exit charges also apply, which can discourage investors from leaving to seek cheaper deals elsewhere.

Still, despite these charges, investors across the UK have entrusted the group with more than £100bn of their cash, so St James’s has to be doing something right. And that’s why I think the stock could be a fantastic addition to your income portfolio today.

As St James’s has grown over the past six years, management has prioritised dividend growth. The payout has increased at a compound annual rate of 25%.

Today, the stock supports a dividend yield of 5.4%. Only on a handful of other occasions has the yield reached this level. As a result, I think now would be a great time to snap up shares in this dividend growth champion.

Turnaround complete

Another FTSE 100 dividend stock that I’ve got my eye on today is insurance group RSA (LSE: RSA). The company used to be one of the top income stocks in the FTSE 100 but, in 2014, it was forced to slash distribution as it struggled with rising costs, alongside increasing losses and asset impairments.

RSA lost a staggering £350m in 2013, a low point of the company. Since then, management has been working flat out to restore the group’s probability and reputation. It earned £349m in 2018 and analysts believe net income could rise to £515m or 48.8p per share by 2020. Based on these forecasts, the stock is trading at a forward P/E of 10.8.

On top of this, RSA’s dividend credentials have been restored. Analysts are expecting the company to distribute 25.7p per share to investors this year, giving a dividend yield of 4.9% on the current price. The payout is expected to grow a further 18% in 2020, leaving the stock yielding 5.7%.

Cash cow

The third FTSE 100 dividend stock yielding more than 5% I think could be a great addition to your portfolio in September is retailer WM Morrison Supermarkets (LSE: MRW). 

City analysts believe this business will distribute 9.7p per share to investors as a dividend in its current financial year. Based on this estimate, it looks as if the shares could yield 5.4% on a forward basis. 

What I like about this retailer is its cash generation. Morrison’s has produced £250m in free cash flow per annum on average for the past two years, easily enough to cover the annual dividend.

On top of this, the group’s balance sheet is much stronger than most other retailers. Net gearing, the ratio of net debt to shareholder equity, was just 22% at the end of fiscal 2019, down from 60% at the end of fiscal 2014. 

The combination of this healthy balance sheet, robust free cash flow and Morrison’s fiscal responsibility, leads me to conclude this dividend champion could be a fantastic addition to your portfolio. 

The post 3 FTSE 100 dividend stocks yielding more than 5% I would buy in September appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The firm provides testing and quality assurance services for companies around the world. It makes sure any components used in the production process meet all safety and quality assurance standards, which isn’t a particularly exciting business, but it’s an essential one.

Indeed, management calculates the global market for quality assurance services is worth $250bn annually. Consumers’ concerns about product sustainability and quality is driving the growth of this market, according to the company. What’s more, Intertek’s customers can’t compromise on testing quality. So, as one of the largest, most respected and trusted businesses in the industry, I think it’s exceptionally well-positioned to capitalise on this growth.

Steady growth

In the first six months of 2019, the company’s revenue expanded 7% year-on-year at actual exchange rates. Thanks to operating efficiencies, the group’s profit margin increased 0.3% overall during the first half, pushing earnings per share higher by 7.9% at actual exchange rates.

Steady high single-digit growth is what investors have come to expect from Intertek over the past decade. Earnings per share have grown at a compound annual rate of 7.3% for the past six years as the company has complemented organic expansion with bolt-on acquisitions.

Ask the market for testing and quality assurance services continues to expand, I think Intertek can continue to grow earnings at this steady pace for many years to come, which is why I’m recommending the stock as a starter investment.

As well as its growth potential, the shares support a dividend yield of 1.9%, and has grown at a rate of around 10% per annum historically. As the company’s growth continues, I reckon it’s highly likely the dividend will continue to grow in line with earnings (as it has done in the past) as well.

Impressive recovery

Another company I think might be worth considering if you have £5,000 to invest is insurance group RSA (LSE: RSA). Back in 2013, RSA was struggling to survive. But thanks to management’s efforts, the firm is now stronger than it has been for years. From a loss of £347m in 2013, analysts believe net profit will hit £468m this year. 

Half-year numbers show the company is well on the way to meeting this target. A strong performance at the group’s general insurance business helped it report an increase of 1% in operating profit for the first half of 2019. Net written premiums remained largely unchanged at £3.2bn.

Growth is all well and good, but what I’m interested in is the company’s dividend potential. Its robust first-half performance has allowed management to declare an interim dividend payout of 7.5p per share, up 3% year-on-year.

For the full year, analysts believe the company has the potential to distribute nearly 27p per share, which would give a dividend yield of 4.8% at the current share price. Analysts also believe it will have even more scope to grow its dividend in 2020, with a yield of 5.6% currently projected.

All in all, with the stock currently trading at a forward P/E of just 12.2, RSA looks to me to be a cheap, growing income play that could be worth adding to your portfolio today.

The post £5,000 to invest? I would buy and hold these FTSE 100 dividend leaders forever appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Intertek. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With this being the case, today I’m going to highlight three FTSE 100 stocks that I believe currently offer once-in-a-lifetime yields.

Turnaround complete

The first company is FTSE 100 insurance group RSA (LSE: RSA). Investors have been giving this business a wide berth since 2013 when the group ran into trouble, losing £347m in that year alone and forcing management to act quickly to stem losses. 

After five years of restructuring, the business now looks as if it has finally recovered from past mistakes. For 2019, analysts are expecting earnings per share to rise a staggering 37%. They’ve also pencilled in a 36% increase in the dividend payout, which will give an estimated yield of 5.1% according to current projections. Not only is this the highest distribution the company has offered since the financial crisis, but its valuation is also extremely attractive compared to history.

What’s more, shares in RSA are currently dealing at a forward P/E of 12.4 compared to the five-year average of around 15.

Flying high

My next dirt-cheap income play is International Consolidated Airlines Group (LSE: IAG). A quick look at this business will quickly tell its shares are extremely undervalued at current levels.

Over the past 12 months, shares in IAG have declined by around 34% and after this slump, are dealing at a forward P/E of 4.6. However, the company’s fundamentals do not support this decline. City analysts are expecting earnings per share to rise from €1.16 to €1.20 by 2020.

Analysts reckon the company will increase its dividend to investors as well during this period. The City has the stock yielding 6.2% in 2019, and with the distribution covered 3.4 times by earnings per share, it doesn’t look to me as if this payout will come under pressure anytime soon.

With the stock trading at a discount of around 50% to its 10-year average P/E, and supporting the highest dividend yield since 2009, I reckon now could be the time to snap up shares in IAG on the cheap.

Growing market

My final FTSE 100 income play is global cruise operator Carnival (LSE: CCL). There is plenty to like about this business. As I have pointed out before, one of the main reasons why I am bullish on this company is because the demand for cruises is growing steadily around the world, and is forecast to continue doing so for many years to come.

As the operator of the biggest fleet of cruise ships in the world, Carnival is exceptionally well placed to profit from this trend. But the market seems to be overlooking this factor. Right now, the stock is trading at its lowest valuation in 10 years, even though earnings have nearly tripled in the past six.

On top of this, the stock supports a dividend yield of 4.1%, which is the highest yield offered by the shares since 2014. The distribution is covered twice by earnings per share. All of the above leads me to conclude that Carnival is another bargain income stock that’s worth adding to your portfolio today.

The post I think there’s never been a better time to buy these 3 FTSE 100 income stocks appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Carnival. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The energy supplier famously sank after shocking full-year numbers unpacked in late February, and while it may have avoided an ignominious slump following its latest update, the miserable share price slide in the run-up to yesterday — down 25% since that last release — reflected market expectations of another miserable update.

Centrica’s now dealing under 100p per share for the first time this century, and can anyone honestly expect it to bite back given the rate at which it continues to lose customers? This week’s update showed the company lose an additional 234,000 in the four month to April because of “a significant increase in the level of the default tariff cap.”

Trouble across the board

However, further erosion in the customer base wasn’t the company’s only problem in the first third of 2019 as warm weather hit its North American operations; gas prices fell in the UK; and extended outages occurred at the Dungeness B and Hunterston B nuclear power stations. Quite the nightmare start to the year then.

So sure, Centrica’s 11% forward yield might be one of the biggest on the FTSE 100 right now, but this isn’t enough to tempt me. I expect profits to be falling and dividends to be cut, scenarios which bode ill for the share price in the near term and beyond.

RSA is A-OK

Dividend yields at RSA Insurance Group (LSE: RSA) sit well below those of the utilities giant for the next couple of years, at 5.2% and 6% for 2019 and 2020 respectively.

However, because of the rate at which the firm has hiked shareholder payouts in recent years — almost 1,000% since 2014, to be exact — and at a time when Centrica has been slashing its own dividend, I reckon this stock is a much better Footsie share to load up on today.

Of course the past is not a watertight indicator of what we can expect RSA’s dividends to come in at in future years, but it does illustrate the generosity of the board when it comes to such matters. And judging from most recent financials, the insurance provider certainly appears in good shape to keep raising annual payouts at breakneck pace.

Data last week showed net written premiums rose 3% in the three months to March, reaching £1.57bn, with business at RSA remaining robust despite an environment of tough market pricing. In particular, this latest statement illustrated the strength that the firm’s major overseas markets of Canada and Scandinavia affords it — while premiums in the UK and international sank 5% in quarter one, in Canada they jumped 8% and in Scandinavia they rose 3%.

An extra reason to expect big dividends this year at least: RSA’s bulletproof balance sheet, with its Solvency II ratio which stood at of 164% as of March. For dividend chasers, RSA is no longer the bête noire it was when it was slashing dividends in the middle of the decade. Indeed, for those looking to receive big, big returns well into the next decade, I reckon it’s a great share to load up on today.

The post Forget Centrica’s 11% yield! I think this FTSE 100 dividend growth stock is a better buy appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Revving higher

There’s a reason why Warren Buffett has invested most of his money in insurance companies, and that’s because they tend to be highly profitable. Direct Line (LSE: DLG) is no exception.

One of the UK’s leading insurance businesses, Direct Line sells its insurance policies direct to customers so, unlike many of its peers, the group doesn’t have to pay hefty commission fees to brokers. This clearly shows in the company’s profit margins. Last year, the firm reported an operating profit margin of 16.9%, compared to the UK insurance industry average of 8.5%.

City analysts believe the company will distribute 28.5p per share in dividends this year, giving a potential dividend yield of 8.4%. Last year it paid out 21p and in 2017 it distributed 20.4p.

In other words, Direct Line has a history of distributing lots of capital to shareholders. Unless the company’s business suffers a sudden shock, I don’t see any reason why this trend will not continue. At the time of writing, the shares are dealing at a forward P/E of just 11.4.

Under the radar

My second blue-chip income play is Phoenix Group (LSE: PHNX). Phoenix isn’t a household name, and it isn’t likely to become one anytime soon. The company specialises in the acquisition and management of closed life insurance and pension funds, which is hardly the most exciting sector.

The business of managing pension assets might be boring, but it’s essential and Phoenix has carved out a niche for itself in the industry. After buying Standard Life Aberdeen’s insurance business last year, profits at the group jumped nearly 100% in 2018 to £708m, and assets under administration hit £226bn.

Off the back of this growth, management decided to increase the company’s dividend to 46p, giving the shares a yield of 6.3% at current prices. City analysts are expecting more of the same for the next two years with the payout set to increase marginally to 46.8p by 2020.

The shares do look expensive, trading at a forward P/E of 18. But the stock is also trading at a discount to book value of 10% so, from this perspective, Phoenix looks undervalued at current levels.

Turnaround complete

Sticking with the insurance theme, RSA Insurance (LSE: RSA) is my third and final blue-chip income play I’m going to profile.

After cutting its dividend by 70% in 2013, and then 80% in 2014 as losses mounted, the team at RSA has been working flat out to turn the business around. Led by former RBS boss Stephen Hester, the company is now back on firm ground. Profits have recovered and the dividend is growing rapidly.

This year, the City expects the company to report a net profit of £488m and earnings per share of 45.5p. Analysts believe this will give the business capacity to distribute 28.7p per share to investors, giving a dividend yield of 5.4% at the time of writing. They’ve also pencilled in dividend growth of 13% for 2020, offering a potential dividend yield of 6.1% for next year.

Shares in RSA are currently changing hands at a forward P/E of 10.9.

The post 3 buy-and-forget FTSE 100 stocks yielding 5%+ appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns shares in Standard Life. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Its share price rose 4% last month as the Footsie fell 5%, the investment community jumping in due to anticipation of bright full-year results at the beginning of November. And those optimists were not disappointed, Associated British Foods spiking to four-month highs following last week’s release.

I’ve long championed the food and clothing giant’s long term earnings outlook, particularly because of the success of its Primark value fashion chain and plans to replicate its successful model across Europe and the US.

And my faith was paid off again this month when Associated British Foods declared that its Retail division “delivered its most significant profit growth in recent years.” With Primark revenues having risen 6% in the year to September 15, to £7.48bn, adjusting operating profit leapt 15% to £843m.

Sales were helped by the opening of 15 new stores across eight countries in the last fiscal period, and the Footsie firm has no intention of slowing down on its expansion drive. Indeed, it commented that “Primark has the potential for growth in all of its existing markets,” the business adding that it  plans to open more stores in the US as well as to enter a number of markets in Central and  Eastern Europe.

A great dividend grower

The Retail division may have been the showstopper once again, but that business is not the be-all-and-end-all for Associated British Foods. The company’s Grocery, Ingredients and Agriculture divisions also traded strongly in the past 12 months, robust performances that helped group adjusted operating profit rise 3% year-on-year to £1.4bn.

The exceptional result for fiscal 2018 encouraged Associated British Foods to hike the total dividend a mighty 10% to 45p per share, and City analysts are expecting further profits progress to 46.5p per share in the current period, a figure that yields a handy 1.8%.

I reckon, though, that this projection — as well as the anticipated 1% earnings advance — could be subject to significant upgrades as the months roll by.

Catch this 5.7% yielder too!

All things considered, I think the Primark owner is well worth an elevated forward P/E ratio of 19 times. But for share investors seeking true value then fellow FTSE 100 star RSA Insurance Group (LSE: RSA) is certainly worth a look, in my opinion.

The financial giant was put on the defensive after a disappointing third-quarter trading update in late September, and although investor appetite for it has improved more recently it still carries a dirt-cheap prospective P/E ratio of 13.3 times.

This makes RSA a bargain. In my opinion its long-term outlook remains robust thanks to its improving international businesses, divisions that are expected to help RSA recover from an anticipated 7% earnings reversal in 2018 with a 24% rebound next year.

And like Associated British Foods, the City expects dividends to keep bounding higher too. Last year’s 19.6p per share reward is expected to stomp to 23.3p this year and to 30.8p in 2019, figures that yield a giant 4.3% and 5.7% respectively.

If you’re looking to retire on a fortune, I reckon both of these firms are a great shares to help you to achieve this goal.

The post Could these 2 FTSE 100 dividend stocks REALLY help you to retire rich? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Heavier-than-expected UK losses have led to an underwriting loss for the quarter, leading chief executive Stephen Hester to tell us that “actions to improve in the UK are well under way,” while the company reported a strong period in its international business.

Problems in the UK stem partly from bad weather losses, but RSA’s motor and marine insurance sectors have been suffering too. But on the upside, UK household and commercial property insurance saw improvements.

Although reported pre-tax profit should be ahead of last year, on an underlying basis it’s expected to come in below 2017’s result — and that was put down “primarily to elevated weather costs.”

Buy or sell?

What does all this say about RSA as an investment, and has it hit Mr Hester’s “best-in-class ambitions” for the company?

Well, the first thought that strikes me is that insurance companies are in the business of shouldering risk for their clients, so when things go bad it’s the company that takes the hit and not the person with a wind-blown tree crushing their car, or whatever calamity it is.

So investors should expect to see quarters like this, which are pretty much inevitable for any insurance company. And as an investor who likes the insurance business myself (I hold Aviva shares, but I’ve owned RSA in the past), I’d be looking to top up on share price drops like this.

On the whole, I still see RSA as a solid long-term investment.

Another big drop

Industrial LED maker Dialight (LSE: DIA) was another of the FTSE’s major casualties on Friday, with its share price crashing by more than 20% as the market opened, before regaining a good deal of that to stand around 7% down by midday.

Dialight’s bad news came on Thursday after the markets closed, as the firm announced the termination of its agreement with its current manufacturing partner. The partner’s performance, which Dialight had described as “disappointing but stable,” has apparently deteriorated.

And with production of key products already shifting back to its own facilities, a line has been drawn under this unfortunate episode.

The company now expects to record full-year operating profit of around £8m to £10m, which allows for £6m to £7m additional costs associated with its manufacturing partner problems.

Valuation dented?

Dialight shares had been on an attractive growth valuation with a P/E multiple of 17 for the current year, expected to drop to under 12.5 by 2019, and with PEG ratios of only 0.3 for each year (with anything under 0.7 usually seen as attractive).

That valuation is not looking so tempting now, but I think a successful full transfer of manufacturing could see growth resume fairly quickly. I’ll be watching for the firm’s next update scheduled for early December.

The post Is FTSE 100 faller RSA Insurance a top buy after 9% plunge? appeared first on The Twelfth Magpie.

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• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Alan Oscroft owns shares of Aviva. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Making good progress

Outsourcing group G4S (LSE: GFS) is shifting its focus towards cash handling and technology-based security. Over time, this should help the firm move away from low-margin work that requires a high headcount. It’s a strategy that seems to be working well.

Last year saw the group’s revenue rise by 3.1% to £7.8bn, while adjusted after-tax profit rose 6% to £277m. Analysts expect profits to rise by another 7% to £295.5m in 2018.

So far this year, the group has signed new contracts adding £500m to annual revenue, compared to £1.4bn for the whole of 2017. A key area of growth is the group’s North American cash solutions business, which handles cash for retailers. The group reported another “major contract win” in February and said the division has “a large sales pipeline”.

Why I’d buy

I was very encouraged by the improvement in G4S’s profitability last year. Return on capital employed — a measure of profit compared to money invested in the business — rose from 12.2% in 2016 to 16.7% in 2017. That’s above the benchmark of 15% I use to screen for highly profitable businesses.

Looking ahead, the group’s earnings are expected to rise by about 8% to 19.3p per share in 2018. This puts the stock on a forecast P/E of 13 with a prospective yield of 3.8%. In my view this is likely to be a good level to buy for a long-term income holding.

Another successful turnaround

Shares at insurer RSA Insurance Group (LSE: RSA) have risen by more than 50% since the start of 2016, as the turnaround led by chief executive Stephen Hester has delivered impressive results. Since taking charge in 2014, Hester has sold non-core businesses, cut costs, and boosted growth in core markets such as the UK, Canada and Scandinavia.

Last year saw the group achieve a combined ratio of 94%. This is a measure of underwriting profit, which shows how much is left from the group’s premium income after operating and claims costs have been subtracted. Last year’s figure of 94% was a new record for RSA, a pretty good figure for any mainstream insurer.

Profitable and cheap?

The combined ratio is a useful measure of profitability. But insurers also invest their premium income in the hope of achieving higher returns. A better measure of the overall profitability of the business is return on tangible equity, which measures after-tax profit against its tangible book value.

RSA’s return on tangible equity rose from 14.2% to 15.5% last year. That’s towards the top end of the company’s target range of 13-17%, a good result in my view.

Analysts’ consensus forecasts suggest that the group’s underlying earnings will rise by 15% to 50.2p per share this year. The dividend is expected to rise by nearly 50% to 28.7p per share. These projections put the stock on a forecast P/E of 12.8 with a yield of 4.5%. I’d rate the shares as a buy at this level.

The post Why G4S isn’t the only FTSE 100 dividend stock I’d buy today appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.