The Motley Fool

5 Of My Favourite Income Stocks: Admiral Group plc, Esure Group PLC, Amlin plc, Direct Line Insurance Group PLC And Lancashire Holdings Limited

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.

Thanks to their asset light, high-return-on-equity business model, insurance companies can be some of the most cash generative businesses around.

And realising this fact early on in his career, helped billionaire Warren Buffett build the business empire he presides over today. 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

In particular, during the late 60s Buffett paid around $9m for two small, well-run insurance companies, National Indemnity and its sister company, National Fire & Marine. 

Today, after five decades of growth and business reinvestment, these two companies are worth $111bn, a value which exceeds that of any other insurer in the world.

Of course, I’ve cherry-picked this example, but it illustrates how lucrative insurance investments can be.

That’s why insurers Admiral (LSE: ADM)Esure (LSE: ESUR)Amlin (LSE: AML)Direct Line (LSE:DLG) and Lancashire Holdings (LSE: LRE) are my five top income stocks. 

Best of breed

Lancashire is the perfect example of a well-run insurer that looks after its investors. Strict insurance underwriting controls have allowed the company to return around 100% of income to shareholders during the past five years.

Including both dividends and capital growth Lancashire’s shares have returned approximately 500% since coming to market during 2006. 

Lancashire’s shares aren’t expensive, either. The company currently trades at a forward P/E of 10.7. City analysts believe that Lancashire’s dividend yield will top 9.5% this year as the company continues to return the majority of its income to investors. 

Dividend champion 

Over the years, Admiral has built a reputation for being one of the FTSE 100’s dividend champions. 

Although the company’s dividend yield lags that of Lancashire, it’s still highly impressive. Over the past five years, Admiral has returned a total of £1.1bn to investors via both regular and special dividend payouts. This works out as around 90% of Admiral’s net income generated over the period. 

City analysts have pencilled in a dividend yield of 6.1% for Admiral this year and 6.5% during 2016. The company currently trades at a forward P/E of 15.7. 

Catching up

Direct Line and Esure have only been public companies for a couple of years, but they’re moving rapidly to build the same dividend appeal as Admiral and Lancashire. 

Direct Line is planning a special dividend of 27.5p per share to investors this year following the disposal of its international division. Including the company’s regular payout, Direct Line’s cash return to investors will be in the region of 44.3p per share this year, a yield of 12.9%.

Analysts expect Direct Line’s dividend yield to fall back to 4.6% next year. 

Esure is set to support a dividend yield of 6.0% this year and 6.3% during 2016.

According to City projections, Esure’s dividend payout will be covered 1.3 and 1.2 times by earnings per share during 2015 and 2016 respectively. The company currently trades at a forward P/E of 13.4. 

Takeover play

Lloyds of London insurer, Amlin is a great play on the wave of mergers currently sweeping the insurance industry. 

Including a special dividend of 34p per share issued during April, Amlin’s shares have returned 12.3% year to date, outperforming the FTSE 100 by 9%. Excluding special dividends, City analysts expect Amlin’s shares to yield 5.9% this year and 6.2% during 2016. The company currently trades at a forward P/E of 11.8. 

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Rupert Hargreaves owns shares of Lancashire Holdings. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.