I am convinced the premium price revival in the motor insurance segment will continue to fund chunky dividends over at esure (LSE: ESUR).
The company — which derives more than four-fifths of total premiums from the car insurance segment — has a long history of battering Britain’s blue chips as an income pick, and the City does not expect esure to lose its crown any time soon.
Indeed, a projected 11.8p per share dividend for 2017 results in a mammoth 4.8% yield, smashing the FTSE 100 forward average of 3.5%. And a forecasted 12.9p payout next year moves the yield to 5.3%.
Still surging
And esure’s latest results suggest that shareholder rewards should keep on charging.
Gross written premiums at the London insurer galloped 19% higher last year to, £655m, with live policies increasing 8.6% to 2.174m.
Esure remains committed to its target of hitting 3m policies by the end of the decade as it expands its footprint in its core motor markets, a promising omen for future earnings — indeed, last year’s results underlying pre-tax profit boomed 18% to £80.5m.
While pricing pressures in the home insurance market remain more challenging at present, esure is still seeking to build its position in this segment to diversify its revenues streams and thus provide earnings that little bit extra stability.
In the meantime, income hunters should take heart from esure’s commitment to remain “a low risk personal lines insurer,” a move that significantly enhances its earnings visibility.
Furthermore, esure’s strong balance sheet also bodes well for future dividend payments. The company’s capital coverage clocked in at 149% at the end of 2016, falling at the upper range of its 130%-150% target and giving the firm plenty of scope to ride out any adverse capital requirements and continue doling out generous dividends.
Set sail with Saga
While near-term dividend projections at Saga (LSE: SAGA) may not be as impressive, I believe the insurance and holidays provider should provide increasingly-tantalising rewards in the years to come.
For 2017 an estimated 7.7p per share payout yields a decent-if-unspectacular 3.7%. But the dividend is expected to detonate from next year onwards, starting with an 11.7p payment in 2018 that yields a staggering 5.6%.
Saga — which provides a range of products for the over 50s — saw underlying profit shoot 5.6% higher in 2016, to £187.4m. But this was not the only cause for celebration as its debt-slashing measures saw net debt fall 15.1% to £464.8m.
And Saga is embarking on exciting growth plans to keep the profits rolling in.
The business has identified around half a million ‘High-affinity Customers’ — clients that buy more than one product — in order to drive revenues and cut marketing costs. This small band of customers (representing approximately 20% of Saga’s entire base) accounts for around four-fifths of customer value, suggesting that the scheme has plenty of upside.
On top of this, Saga also plans to introduce its ‘Saga Possibilities’ membership and loyalty programme later this year to bolster cross-selling opportunities and improve retention rates.
Saga has already reported a strong start to the financial year, and such measures should facilitate robust earnings — and consequently dividend — growth long into the future.