The FTSE 100’s Hottest Dividend Picks: Old Mutual Plc

Royston Wild explains why Old Mutual plc (LON: OML) is an excellent pick for savvy stock hunters.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Today I am looking at why I consider Old Mutual (LSE: OML) to be an attractive dividend selection.

Dividends poised to stride higher

Even though earnings have slipped in three of the past five years, life insurance giant Old Mutual has remained a popular pick with income seekers, the firm having lifted the annual dividend at an eye-watering compound annual growth rate of 52% since 2009.

Payment growth has become a lot more ‘civilised’ in recent years, so to speak, with the full-year dividend rising just 14% in 2013 to 8p per fivepoundcoinsshare.

And City analysts see further weighty payment rises on the horizon, with a 9% advance pencilled in for 2014, to 8.7p, despite another (albeit fractional) earnings fall during the period. A solid 11% earnings improvement chalked in for 2015 is expected to undergird a stronger 13% dividend rise to 9.8p per share.

The dividend forecast for 2014 produces a weighty yield of 4.3%, making mincemeat of a prospective average of 3.2% for the FTSE 100 although falling slightly short of a corresponding readout of 4.6% for the entire life insurance sector. But 2015’s expected increase blasts Old Mutual’s yield to a stunning 4.9%.

Emerging market exposure bolsters dividend outlook

Meanwhile, dividend coverage through to the end of next year should boost investor confidence in the likelihood of such bumper payouts. Indeed, dividend forecasts for this year and next boast are covered by 2.1 times predicted earnings, above the generally-regarded security territory of 2 times.

And with an extensive exposure to emerging markets, Old Mutual is well positioned to benefit from the low penetration rates of insurance products and rising disposable income levels in these regions. Almost four-fifths of the firm’s funds under management (or FUMs) are held in South Africa, and the company saw total FUMs in the country leap 12% as of the end of March from the corresponding point in 2013, to 671.7bn Rand.

The firm also has solid exposure to Asia, Latin America and other parts of Africa, and reported that total developing region gross sales rose 18% during January-March. And the firm is investing heavily in these geographies to latch onto rising revenues opportunities, including the acquisition of Ghana’s Provident Life and Kenya’s Faulu in recent times.

With Old Mutual pulling up trees in these exciting regions, I believe that dividend seekers can look forward to strong payout growth in coming years in line with robust earnings expansion.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.

More on Investing Articles

Investing Articles

With a P/E ratio of 9, is the Aviva share price a bargain?

Christopher Ruane looks at the Aviva share price and considers some strengths and weaknesses of the FTSE 100 insurance business.

Read more »

Surprised Black girl holding teddy bear toy on Christmas
US Stock

Is it too late to buy growth stock Shopify after its 25% pop?

Up more than 40% this year, Shopify is on fire at the moment. Here, Edward Sheldon explains how he’d play…

Read more »

Investing Articles

Investors should consider buying this energy AIM stock, up 50% in the past year

AIM stock Afentra has seen a stellar price rise in 12 months to November. I believe there may be room…

Read more »

Investing Articles

2 ISA shares to consider for a large passive income!

Looking for dividend shares to buy in a Stocks and Shares ISA or Lifetime ISA? Royston Wild reveals two of…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

A Bitcoin investment that can be held inside a Stocks and Shares ISA or SIPP

UK investors can’t buy Bitcoin ETFs for their investment accounts or SIPPs due to FCA regulation. This stock could be…

Read more »

Entrepreneur on the phone.
Investing Articles

As the Vodafone share price slides 6% on lacklustre H1 results, what does the future hold?

After posting moderate results this morning, Vodafone saw its share price sink further, erasing this year's gains. Our writer looks…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing For Beginners

If I’d invested £5k in a FTSE tracker fund after the pandemic crash, here’s what I’d have now

Jon Smith explains the extent of his potential gains if he'd invested in a FTSE tracker fund during the Covid…

Read more »

Investing Articles

2 top shares I’ve bought for my Stocks and Shares ISA in November

This writer reveals a pair of fast-growing businesses that he's recently added to his Stocks and Shares ISA for the…

Read more »