I took a look at the Life Insurance business recently, and today I’m turning my attention to the non-life sector and to three companies that are perhaps best known for their TV ads.
First up is RSA Insurance (LSE: RSA), the UK’s second largest general insurance group whose More Th>n brand is familiar gogglebox fare and provides car, home, pet and travel insurance.
Next is Direct Line Insurance (LSE: DLG), split off from Royal Bank of Scotland through an IPO in October 2012, and prolific in advertising its Direct Line, Churchill and Green Flag brands.
And finally motor insurance firm Admiral (LSE: ADM), which also owns the Confused.com brand.
Here’s how they compare:
| RSA | Direct Line | Admiral | |
|---|---|---|---|
| Market cap | £4.82bn | £4.43bn | £3.44bn |
| EPS change 2013 | -10% | +15% | +10% |
| P/E | 11.6 | 9.9 | 12.5 |
| Dividend Yield | 2.5% | 8.2% | 7.6% |
| Dividend Cover | 3.46x | 1.99x | 2.23x |
| EPS change 2014* | -8% | -7% | -2% |
| P/E | 14.8 | 12.7 | 12.1 |
| Dividend Yield | 1.9% | 7.4% | 8.0% |
| Dividend Cover | 3.58x | 1.06x | 1.04x |
| EPS change 2015* | +13% | +11% | -7% |
| P/E | 13.1 | 11.4 | 13.0 |
| Dividend Yield | 3.6% | 6.7% | 7.0% |
| Dividend Cover | 2.12x | 1.31x | 1.09x |
* forecast
How come Direct Line and Admiral are paying such big dividends?
It’s all special
Both of them pay a large part of their annual dividends as special dividends, so those forecasts are perhaps not going to be as reliable as some.
In 2013, Direct Line paid out 12.6p per share in ordinary dividends plus special dividends of 8p, taking the total to 20.6p. But for this year the special portion is expected to accelerate, having already reached 10p at the halfway stage compared to an interim ordinary dividend of 4.4p.
Similarly, of the 99.5p paid out by Admiral in 2013, the ordinary dividend comprised 46.9p with a special of 52.6p. That’s not bad for a year that Admiral declared “the year of the baked potato” — solid, but not flashy, apparently.
For the first six months of this year, Admiral paid 23.7p as an ordinary dividend, plus a special portion of 25.7p.
Such high payouts are possible in good years when the volume of claims is relatively low, but the cash is only lightly covered by earnings. So if you invest in one of these, you should expect a lot less in special dividends should your company have a bad year for claims.
On ordinary dividends alone, Direct Line paid out 5% in 2013 and Admiral coughed up 3.6%.
RSA scandal
At the other end we have the relatively paltry dividends on offer at RSA. The company’s cash was badly stretched in 2011 when a dividend yielding 8.7% was paid, and that was cut to yield only 5.8% the following year.
The 2013 scandal of irregularities in the firm’s Irish operations then led to an investigation and number of heads rolling, and the final dividend was canned — dropping the yield to just 2.5%.
Since then we’ve seen the appointment of Stephen Hester as CEO and a rights issue, and the dividend is expected to fall further.
Which is best?
I have to say a troubled RSA on a forward P/E of 15 and a very low dividend is not my cup of tea, so of these three I’d go for Direct Line or Admiral if forced to choose one — but I really don’t think there’s anything between them.
