3 Spectacular Reasons That Make Direct Line Insurance Group plc A Buy

Royston Wild highlights the key reasons which make Direct Line Insurance Group plc (LON: DLG) a great share pick.

| 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.

direct line

Today I am looking at why I believe Direct Line Insurance Group (LSE: DLG) is a canny investment for stock market investors.

Money comparison effect on the wane?

Make no mistake: the country’s largest motor insurers have come under sustained pressure from the steady fall in the cost of insurance premiums. The surging popularity of price comparison websites has been a key factor behind this, and the Association of British Insurers noted last month that the average premium slid almost 9% during 2013 to £374.

However, recent reports suggesting that the negative effect of such websites on Britain’s insurers is now starting to peter out was confirmed by the institution’s latest figures. Indeed, these actually showed the average premium tick 1.4% higher during October-December from the previous three-month period, to £370 from £365.

Fingers in many pies

Direct Line’s extensive operations across many niches also gives it terrific strength in diversity, insulating it against weakness in any one market. The company is a major player in the British home and motor insurance segments — areas responsible for 39% and 26% of total gross written premiums respectively — with the remainder spread evenly across its commercial, international and other product lines.

Much has been made of the effect of recent extreme weather conditions in the UK on the bottom line of the likes of Direct Line. However, Deloitte estimates that — should heavy rain persist for another few weeks — the total cost is likely to register at around £1bn, BBC News reports, well below that of the final bill when storms lashed the country seven years ago.

A prime selection for plump payouts

Direct Line is expected to supercharge 2012’s 8p per share maiden dividend to 15.2p in 2013, according to City forecasts, results for which are due on Wednesday, February 26. This projection leaves the company with a yield of 5.8%, smashing the FTSE 250 forward average of 2.8% and outstripping a corresponding reading of 4.1% for the complete non-life insurance sector.

Analysts expect the firm to rein in the payout slightly next year — a dividend of 13.7p is widely anticipated — although an uptick to 14.8p is pencilled in for 2015. Even though these predicted payments come in below 2013 levels, these still create lofty yields of 5.3% and 5.7% respectively.

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 does not own shares in Direct Line Insurance Group.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

Down 75%! Will the Saga share price ever be loved again?

The last few years have been incredibly difficult for those watching the Saga share price. But what does the future…

Read more »

Investing Articles

What kind of return could I expect by investing £100 monthly in a Stocks and Shares ISA?

Using a Stocks and Shares ISA to avoid capital gains tax could grow a £100 monthly investment into a second…

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 Articles

Can strong operational momentum keep the Informa share price rising?

FTSE 100 company Informa has been performing well, but this may be just the beginning of a multi-year trend for…

Read more »

Market Movers

What’s going on with the Britvic share price?

Jon Smith flags up why Britvic's share price is surging on Friday, but believes that the company is in a…

Read more »

Cheerful young businesspeople with laptop working in office
Dividend Shares

2 super-cheap passive income shares I’m eyeing up right now

Jon Smith discusses two of his favourite passive income shares in the banking and property sectors, both featuring yields above…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

Up 37.5% in just 12 months, I think this is one of the FTSE 100’s best investments

Our author says this FTSE 100 company is likely to keep on capitalising on the AI and data boom. But…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

This UK share just spiked 15% on bid news. Can we bag a quick profit?

UK share prices are having a good 2024, so far, and this one's already up 39%. Two takeover bids in…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

I’m ‘blowing a raspberry’ at Raspberry Pi shares. Here’s why

Some early investors have made great profits from Raspberry Pi shares. But our writer's questioning whether the 'easy money' has…

Read more »