The FTSE 100’s Hottest Dividend Picks: Old Mutual Plc

Today I am looking at why I consider Old Mutual (LSE: OML) to be an attractive dividend selection.

Dividends poised to stride higher

Even though earnings have slipped in three of the past five years, life insurance giant Old Mutual has remained a popular pick with income seekers, the firm having lifted the annual dividend at an eye-watering compound annual growth rate of 52% since 2009.

Payment growth has become a lot more ‘civilised’ in recent years, so to speak, with the full-year dividend rising just 14% in 2013 to 8p per fivepoundcoinsshare.

And City analysts see further weighty payment rises on the horizon, with a 9% advance pencilled in for 2014, to 8.7p, despite another (albeit fractional) earnings fall during the period. A solid 11% earnings improvement chalked in for 2015 is expected to undergird a stronger 13% dividend rise to 9.8p per share.

The dividend forecast for 2014 produces a weighty yield of 4.3%, making mincemeat of a prospective average of 3.2% for the FTSE 100 although falling slightly short of a corresponding readout of 4.6% for the entire life insurance sector. But 2015’s expected increase blasts Old Mutual’s yield to a stunning 4.9%.

Emerging market exposure bolsters dividend outlook

Meanwhile, dividend coverage through to the end of next year should boost investor confidence in the likelihood of such bumper payouts. Indeed, dividend forecasts for this year and next boast are covered by 2.1 times predicted earnings, above the generally-regarded security territory of 2 times.

And with an extensive exposure to emerging markets, Old Mutual is well positioned to benefit from the low penetration rates of insurance products and rising disposable income levels in these regions. Almost four-fifths of the firm’s funds under management (or FUMs) are held in South Africa, and the company saw total FUMs in the country leap 12% as of the end of March from the corresponding point in 2013, to 671.7bn Rand.

The firm also has solid exposure to Asia, Latin America and other parts of Africa, and reported that total developing region gross sales rose 18% during January-March. And the firm is investing heavily in these geographies to latch onto rising revenues opportunities, including the acquisition of Ghana’s Provident Life and Kenya’s Faulu in recent times.

With Old Mutual pulling up trees in these exciting regions, I believe that dividend seekers can look forward to strong payout growth in coming years in line with robust earnings 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.