The Admiral (LSE: ADM) share price is very appealing to me and this is my favourite FTSE 100 stock. There are several reasons why I own this company in my portfolio.
Admiral share price advantages
First off, it has a strong brand. Consumers all over the country know Admiral and what it offers. This is a substantial competitive advantage for the business in the overcrowded UK insurance market.
Second, the company has an excellent reputation for customer service. It has won multiple awards for its service and is continually awarded five stars by consumer review sites.
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Of course, having great customer service and a strong brand are useless unless the company is profitable. Admiral is profitable. In fact, the business is one of the market’s most profitable organisations.
The company’s return on equity — a measure of profit vs the money invested in the business — has averaged 49.7% for the past five years. The market median is 4.3%.
These are all desirable qualities. The company is working flat out to ensure it maintains its reputation with customers and a high level of profitability.
Every year it pays staff a bonus in shares based on overall company performance. This is one reason why it is consistently rated as one of the top places to work in the UK.
Further, management has been expanding into new markets recently. The group has started a personal loans business and is investing heavily in its home insurance and travel insurance businesses. As well as these UK initiatives, it is focusing on growing its overseas companies in Europe and the US. I think these businesses will provide a considerable growth tailwind as we advance.
FTSE 100 company risks
However, this company is not without its risks and challenges. The UK car insurance market is incredibly competitive. Admiral needs to make sure it is investing enough to keep its competitive advantage in place. That is not a given. The organisation could lose this advantage at any moment.
Also, insurance is an incredibly profitable business when things are going well. But if mistakes are made or the unforeseen happens, one significant loss can hammer companies overnight. A large natural disaster could floor Admiral and wreak havoc with the group’s balance sheet.
Despite these risks and challenges, I have taken advantage of the attractive Admiral share price and bought the stock for my portfolio. As well as the qualities outlined above, the stock is also set to support a dividend yield of around 7% for 2021, according to current City projections. These are just estimates at this stage, and there’s no guarantee the company will hit this target, of course.
Still, the Admiral share price has been an excellent income investment in the past as the group has returned large sums to investors when times are good. This may not continue, but I think it shows the company’s long-term potential.
