This FTSE 100 income stock often flies under the radar, but it continues to throw off generous dividends.
And its recent performance hints at something more interesting beneath the surface. The business is strengthening, yet the share price still feels restrained.
That gap could be where the opportunity lies for investors who value both income and mispricing.
Increasing dividend returns?
UK insurance giant Admiral’s (LSE: ADM) current dividend yield is 5.4% — way higher than the FTSE 100’s 3.1% average.
However, analysts forecast this will rise to 5.5% this year, 6.2% next year, and 6.8% in 2028. So, my £20,000 holding in the stock would make £19,402 in dividends after 10 years and £132,929 after 30 years. This period is commonly seen as a standard investment cycle for long-term investors, such as me.
These numbers are based on the average 6.8% forecast yield, although these can alter over time — up or down.
They also assume that the dividends are reinvested into the stock to harness the supercharging effect of ‘dividend compounding’. It is like leaving interest to grow over the years in a savings account.
After 30 years on this basis, the holding’s value would be £152,929.
And this would generate an annual income from dividends of £10,399!
Rising share price?
Share prices tend to converge to their ‘fair value’ over time. This value represents the true worth of the underlying business, while price is simply whatever the market will pay at any point.
Discounted cash flow (DCF) analysis identifies any stock’s fair value by projecting future cash flows from the business. It then discounts these back to today.
DCF modelling varies according to the assumptions used by analysts — some more bullish than mine and others more bearish. But based on my DCF assumptions — including a 7.2% discount rate — Admiral shares are 48% undervalued at their current £33.50 price.
On that basis, I calculate a ‘fair value’ of around £64.42 — nearly twice the level they are now.
So this price-to-valuation gap suggests a potentially terrific buying opportunity today, if those DCF assumptions hold good.
Supported by growth momentum?
A risk to Admiral is the high level of competition in the insurance sector, which may squeeze its margins. Another is any further surge in the cost of living that may prompt customers to cancel policies.
However, its 2025 results, released on 5 March 2026, showed profit before tax jumping 16% year on year to £958m. The rise was powered by Admiral’s core underwriting and cost‑discipline initiatives. Insurance revenue increased 9% to £4.98bn, highlighting continued momentum across UK Motor, Household, and European lines as pricing and customer retention improved. Turnover remained buoyant at £5.9bn, reflecting the successful integration of the ‘More Than’ business into Admiral’s UK portfolio.
These numbers highlight a business with strengthening fundamentals and operational leverage that should continue to drive earnings growth ahead, in my view.
My investment view
This combination of rising dividend potential, strengthening operational momentum, and deeply-discounted share price means I will be buying more of the stock soon.
I also think these elements make it a compelling candidate for long‑term investor consideration.
In short, it offers the rare blend of dependable income today and the possibility of meaningful gains as the market closes the gap between price and value.
