The FTSE 100’s Hottest Dividend Picks: Standard Life Plc

Today I am looking at why I consider Standard Life (LSE: SL) to be a stunning dividend selection.

Dividends predicted to nudge northwards

Although life insurance giant Standard Life has seen earnings fluctuate wildly in recent years, the company has still been able to hike the dividend during this period due to the strength of its balance sheet.

Indeed, the business has lifted the annual payout at a compound annual growth rate of 6.6% since 2009, and City brokers expect Standard Pound CoinsLife to dole out further increases at a similar clip in the medium term, assisted by a programme of aggressive restructuring and streaming revenue growth.

Indeed, current forecasts indicate that 2013’s dividend will rise 7% this year to 16.9p per share, with an additional 7% rise pencilled in for next year to 18p.

As a consequence, Standard Life carries a dividend yield of 4.4% for 2014, and which moves to 4.7% in 2015. These figures take out a forward readout of 3.2% for the complete FTSE 100.

New business flows underpin income potential

It is true that dividend coverage registers above the widely-regarded safety watermark of 2 times prospective earnings, with a reading of 1.5 times for this year expected to edge to 1.6 times in 2015. However, the firm’s weighty capital surplus — which registered at some £3.9bn as of the end of April — should assuage any fears over its near-term dividend outlook.

And in my opinion investors should be encouraged by the firm’s runaway success in attracting new business, progress which is expected to light a fuse under the firm’s earnings this year and next. The insurance giant is predicted to follow growth of 28% this year with an additional 15% advance in 2015.

Standard Life announced saw net inflows surge £2.4bn during January-March alone, pushing total assets under management 1.5% higher to £248.7bn. In the UK the company has benefited greatly from changes to corporate pension regulations, with auto-enrolment rules driving business higher. A focus on boosting third-party client base is also pushing inflows through the roof.

The company is also witnessing surging demand in Canada and emerging markets, particularly in the Asian hotbed of Hong Kong. With the world’s major insurers just cottoning onto the huge potential of these new geographies, allied to strong progress in traditional markets, I believe that Standard Life is well positioned to enjoy earnings and dividend expansion.

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Royston Wild has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.