Dividend hunters scouring the FTSE 100 for five-star income heroes could do a lot worse than check out Direct Line Insurance Group (LSE: DLG) today.
The motor insurance segment remains an increasingly-favourable one as premiums march steadily northwards. This was reflected in Direct Line’s latest set of financials in November in which the firm advised of a 7.1% uptick in gross written premiums at its car insurance division during July-September, to £462m.
And with industry data suggesting a further uptick in industry premiums in 2018 the future looks rosy for the insurer’s core division, particularly as its own brand policies continue to grow in popularity (at Motor the number of in-force policies here rose by 5.5%, or 200,000 policies, in the third quarter).
Meanwhile the company’s own insurance brands like Direct Line are also making terrific progress elsewhere. In-force Home insurance policies grew by 1.8% in the quarter, or 30,000, while gross written premiums rose 1.2%, the division continuing to pick up steam in recent months.
Dividend hero
Thanks to the award of special dividends in recent times, Direct Line is expected to fork out a total dividend of 29.3p per share for 2017.
And supported by expectations of further earnings progression (the business is expected to follow a predicted 45% bottom line rise last year with a 1% advance in 2018) it is likely to shell out more special payments. This results in a projected total dividend of 28.8p for the current year, meaning that investors can bask in a gigantic 7.8% yield.
In my opinion, Direct Line is in good shape to deliver vast yields long into the future. And a forward P/E ratio of 11.9 times adds to the share’s appeal as a hot stock for income chasers.
A wealthy pick
Now St James’s Place (LSE: STJ) may not be packing the sort of low P/E ratios that Direct Line does — in fact, the company currently has a prospective multiple of 25 times — but scratch a little deeper and it could be argued that bargain hunters need to give it serious attention.
Indeed, City forecasts that it will follow a projected 85% earnings rise in 2017 with a further 25% advance in 2018 means that the wealth manager sits on a PEG readout bang on the widely accepted bargain benchmark of 1.
This is an absolute steal in my opinion given that new business inflows at the Footsie favourite continue to explode. Assets under administration are likely to keep on rising in my opinion as St James’s Place steadily adds to its wide catalogue of products with new fund launches.
Although yields at the business may lag those of Direct Line (this stands at 3.8% for 2018), expectations of perky profits growth is expected to keep dividends rising at an astronomical rate. Indeed, 2016’s reward of 33p per share should rise to 40.9p last year, and to 47.5p in the current period.
So for both growth and income investors I believe the business provides plenty to get excited about.
