I’ve always liked the FTSE 100‘s top insurance firms as long-term generators of wealth, and though I don’t own any RSA Insurance Group (LSE: RSA) shares (I hold Aviva currently), I rate it as among the best.
Full-year results released Thursday show why, as the company boasted: “Premium income up 4% to £6.7 billion, combined ratio 94%, a new RSA record.“
RSA looks to be prospering under the leadership of Stephen Hester, who I rate as one of the Footsie’s top bosses (and whose surprise departure from Royal Bank of Scotland in 2013 was, in my opinion, bad news for the bank’s shareholders).
Though underwriting figures in the UK were poor, excellent results from the firm’s overseas operations (particularly in Scandinavia and Canada) helped push underlying pre-tax profits up 12% to £620m, with overall underwriting profit up 4% to a record £380m.
Premiums gained 4% to £6.7bn, though investment income dropped 10% to £331m, which RSA put down to “the impact of disposals and ongoing reinvestment at lower yields“.
Dividend cash
The bottom line saw a 10% rise in underlying earnings per share (EPS), and the full-year dividend was lifted by 23% to 19.6p per share, yielding 3.2% on yesterday’s close of 613p. The shares rose 3% in early trading on Thursday to 632p.
The dividend is the most important bottom line item to me, as I see big insurance firms as long-term income generators. And since Mr Hester’s arrival in 2014, the restructuring he put into place has boosted my confidence in its long-term viability.
Earnings have been climbing steadily, and the dividend has bounced back from 2014’s troubled 2p per share. And with further EPS growth on the cards, the City predicts a dividend of 34p by 2019, to yield around 5.5%.
The best bank?
There has been some doubt about whether the expected dividend growth from Lloyds Banking Group (LSE: LLOY) is perhaps a bit optimistic. And with the annual payout storming back since it was reintroduced in 2014 after the crunch, and predicted to yield as much as 7.1% by 2019, I can see the cause for concern.
But such fears were blown away for me by Lloyds’ latest full-year results. While the dividend being lifted by 20% to 3.05p per share was impressive enough, I was most buoyed by the bank’s plans to return up to £1bn in the form of a share buyback. That would amount to a total capital return of up to £3.2bn (depending on what the “up to” bit means), and it reinforces the bank’s healthy liquidity.
Is Lloyds one I’d suggest as a long-term-buy-and-hold candidate? Well, I hold some shares myself and I have no intention of letting go of them any time soon.
Once bitten
I’m still painfully aware of the irresponsible overconfidence that led the old Lloyds to apparently believe it could do no wrong, and I know how much that hurt some investors who were dependent on its pre-crash dividend stream.
I’m also not naive enough to think that the City will never again be afflicted with short-term greed or that the banking sector will not put another foot wrong.
But that can happen with any business, and the banking sector is going to be under very close scrutiny in the decades to come. And, as a retail-focused operation with its risk-taking ambitions firmly curtailed, Lloyds is one I’m happy to pin some of my retirement hopes on.
