MENU

Prudential plc: A Great Long-Term ‘Buy And Forget’ Investment

Prudential (LSE: PUK) (NYSE: PUK.US) is one of the UK’s most successful insurance companies having been around since 1848 and nearly doubling its earnings during the past five years.

Targets for growth

What’s more, Prudential is driving ahead with growth and recently announced another four-year roadmap aiming to expand the company’s global foot print and increase cash generation. In particular, during the next four years, Prudential is planning to expand its Asian business, targeting profit growth of 15% per annum and £900m to £1.1bn in cash generation by 2017.  

In addition, the company is expanding into new markets, most recently acquiring an insurer within Ghana taking Prudential into sub-Saharan Africa for the first time. Prudential is also growing its foot print within Saudi Arabia. Alongside this growth, Prudential aims to generate £10bn in cash from operations during the next four years, that’s one third of the company’s current market capitalisation.

Management

However, if Prudential is going to be able to achieve these optimistic growth plans the company is going to need a great management team. Luckily, a great management team is exactly what the company has.

Prudential’s management team is led by chief executive Tidjane Thiam, who is highly respected by the City. Indeed, under Mr Thiam’s leadership, Prudential has met five of the six targets the company set out for itself four years ago. 

Furthermore, it would appear as if Mr Thiam is committed to Prudential and the company’s growth as last year he turned down a personal request by Barrack Obama to take a high-level position at the World Bank. He has also chaired G20 high-level panel on infrastructure investment.  

Shareholder retunes

Unfortunately, Prudential only offers a dividend yield of 2.4% at present, below that of its peers such as Aviva and Legal & General. Moreover, City analysts only expect Prudential to increase its payout by 10% this year and 5% during 2014.

However, as Prudential is aiming to generate £10bn in cash during the next four years many City analysts expect the company to either raise its dividend payouts or offer a special dividend to investors. 

Still, even if Prudential does not return additional cash to investors, shareholders can sleep soundly knowing their payout is safe as Prudential’s current dividend payout is covered two-and-a-half times by earnings. So, a dividend cut is unlikely anytime soon.

Foolish summary

So overall, Prudential’s history, performance during the past five years and targets for growth during the next four year, make the company look highly appealing as a long-term investment.

Dividend stocks can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. Over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine.

With this in mind, our analysts sat down and put together these 5 Golden Rules For Building A Dividend Portfolio.

To discover these rules and create dividends for life, download our free report now. It's free so there is no obligation, just click here.

> Rupert does not own any share mentioned within this article.