What Are Prudential plc’s Dividend Prospects Like Beyond 2014?


Today I am looking at life insurance giant Prudential‘s (LSE: PRU) (NYSE: PUK.US) dividend outlook past 2014.

Dividend growth primed to rocket

Prudential’s ultra-progressive dividend policy has established the firm as a popular pick for income investors. The company has grown the payout at a compound annual growth rate of 11.5% since 2008, and City brokers expect the business to continue offering inflation-exploding expansion well into the future.

Indeed, Prudential is anticipated to growth the full-year payment 9% for 2013 to 31.8p per share, with a further 8.8% advance predicted this year to 34.6p. An additional 7.8% rise is expected, to 37.3p, in 2016.

The life insurance specialist has been able to keep the dividend rolling at a steady rate over the past five years owing to extravagant earnings growth, the company boasting compound growth of 17.8% during the period.  Although the company is expected to punch a more-modest 3% improvement in 2013, projected advances of 20% and 11% in 2014 and 2015 respectively represent a return to form.

This is of course a positive omen for shareholder payouts well into the future, with earnings growth projections helping to maintain dividend coverage comfortably beyond the safety benchmark of 2 times. Indeed, Prudential carries a readout around 2.8 times forward earnings through to the end of next year.

It is true that dividend forecasts during the next three years create yields far below the market average, with readouts of 2.5%, 2.7% and 3% through to 2016. This falls well short of the wider life insurance sector’s forward average of 4.6%, as well as a corresponding figure of 3.2% for the FTSE 100.

Still, I fully expect Prudential’s stunning earnings prospects to allow it to close the gap to its blue-chip rivals in coming years, underpinned by surging exposure to lucrative emerging markets. Concerns over a potential economic slowdown in such regions have been deafening in recent days, but I believe that vastly under-serviced insurance sectors in these places — coupled with rising disposable income levels — make it flush with opportunity for the likes of Prudential.

The firm saw new business in Asia surge by double-digits during the first nine months of 2013, with growth in its key Hong Kong and Indonesia markets rising by more than 20% during the period.

Prudential confirms that it is on track to double 2009 new business profits from the continent by the end of this year, and with the firm stepping up M&A activity in these regions, I expect earnings — and with it dividend growth — to flow higher over the long term.

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> Royston does not own shares in Prudential.