I think this FTSE 250 dividend growth stock is about to take off

Rupert Hargreaves looks at a FTSE 250 stock that has a fantastic record of creating value for its investors.

| 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.

The insurance business can be a challenging sector to understand. However, it can also be a highly profitable business if done right. Indeed, billionaire Warren Buffett has made the bulk of his fortune in the insurance industry.

Strength-to-strength

One of the most successful insurance group’s trading in London today is Beazley (LSE: BEZ). Over the past decade, this company has gone from strength to strength.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Management has used the group’s experience in the UK market to expand around the world. And this has produced tremendous returns for shareholders. Over the past decade, the stock has yielded a total annual return of 21%. That’s enough to return an initial investment of £1,000 into around £9,000.

What’s more, it doesn’t look as if the business is going to slow anytime soon.

Growth returns

Since 2016, Beazley has been in a holding pattern. Insurance rates collapsed between 2015 and 2017, which made it harder for companies like Beazley to earn a decent return. However, this started to change in 2017 and 2018 when several large catastrophes inflicted heavy losses on the sector.

We can see just how much of an impact these low rates had on Beazley by looking at its combined ratio, which measures an insurance company’s profitability.

A ratio above 100% indicates the business is paying out more in expenses and claims than it receives in income (insurance premiums). A ratio below 100% tells us that the organisation is making a positive return. 

Between 2012 and 2016, Beazley’s combined ratio was below 90%. That’s extremely impressive. But since then, the company has struggled, with the combined ratio exceeding 100% for the past three years.

Nevertheless, with insurance rates increasing, management expects the combined ratio to return to the mid-90s in the near term. To put it another way, 2020 could be the year that Beazley returns to growth.

Income potential

On top of this growth potential, the stock also looks attractive from an income perspective. Management is targeting dividend growth of 5-10% per annum over the long term.

Recent trading updates from the business show it’s on track to meet this forecast in the current year. Current figures imply the shares have a dividend yield of 2.2%, which looks attractive in the current interest rate environment.

Margin of safety

From a valuation perspective, shares in Beazley appear to offer a margin of safety at current levels. The stock is trading at a price-to-earnings (P/E) ratio of 14.3 and a PEG ratio of 0.7, that metric suggests the shares offer growth at a reasonable price.

While insurance can be an unpredictable business, rising rates across the industry suggest Beazley seems to be on track to report impressive growth for 2020. As such, now could be the time for value-seeking investors to snap up a share of this global group, as it capitalises on the growing market after several years of preparation.

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 no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

This cheap share fell 30% last week. I’d buy now

This huge US corporation saw its shares crash by 30% last week. But I'd buy this surprisingly cheap share now…

Read more »

Various denominations of notes in a pile
Investing Articles

These 7 shares produce passive income of 7% to 11% a year!

Passive income is extra money I make without working. By buying these seven shares, I could earn 8.9% a year…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

6.6%+ dividend yields! 2 FTSE 100 dividend stocks to buy

Finding the best dividend stocks to buy requires extra care today as soaring inflation takes a bite out of shareholder…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

At 85p, are Rolls-Royce shares a slam-dunk buy?

The Rolls-Royce share price is in penny stock territory. Roland Head explains why he thinks this FTSE 100 stalwart looks…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

‘Big Short’ investor Michael Burry is buying this quality growth stock! Should I?

In the first quarter, Michael Burry bought more of this growth stock. Is this a hint that I should also…

Read more »

A beach at sunset where there is an inscription on the sand "Breathe Deeeply".
Investing Articles

Stock market crash: here’s why falling prices is good news

Over in the US, a stock market crash is battering high-priced stocks. But I see falling shares as an opportunity…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

These 5 FTSE 100 shares crashed in 2022. I’d buy 1 today

Although the FTSE 100 index is flat in 2022, some Footsie shares have crashed hard this year. But I see…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How investors can boost their passive income when the FTSE is falling

Stock markets are plagued with fears right now. Here's why I firmly believe those fears improve our passive income prospects.

Read more »