The Motley Fool

Why I see more upside ahead for these dividend shares

Whenever a company makes a major change to its business model, it inevitably leads to higher risks. There is always the possibility that the changes could lead to worsening performance, which may cause reduced profitability and dividend cuts. However, there is also the prospect of improved performance resulting from a refreshed strategy. Here are two stocks that have made changes to their operational activities and which could prove to be stunning dividend shares in the long run as a result.

Improving performance

Reporting on Thursday was insurer Esure (LSE: ESUR). It has gone from strength-to-strength since its demerger of GoCompare last year. It has left the business leaner and more focused, which is evidenced by its improving financial performance.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

For example, in the first quarter of the year the company recorded a rise in gross written premiums of 24.1%. This was despite some weakness in its Home division, where gross written premiums declined by 4.5%. Due to this, the company has decided to temper its growth in home insurance, since market conditions do not currently present opportunities for profitable growth. By contrast, the Motor division recorded a rise of 29%, which indicates a buoyant market after a change to the Ogden discount rate.

Looking ahead, Esure is expected to grow its earnings by 12% in the next financial year. This puts its shares on a price-to-earnings growth (PEG) ratio of just one, which indicates there may be considerable upside potential on offer. Since the company offers a yield of 4.5% from a dividend which is covered 1.5 times by profit, it could become an increasingly popular income stock in the medium term.

Growth potential

Also making changes to its business model in recent years has been RSA Insurance (LSE: RSA). The company has made numerous asset disposals as part of a major restructuring aimed at reducing risks and improving its capital resilience. According to its first-quarter update which was released on Thursday, its turnaround is nearing completion. It has disposed of UK legacy operations and its entire focus is now on its drive for outperformance.

Evidence of its improving performance includes a 14% rise in group net written premiums when compared to the first quarter of 2016. Furthermore, the company’s operating profit in the first quarter was ahead of its plans, while its underwriting performance was also impressive.

Looking ahead, RSA is forecast to record a rise in its bottom line of 8% in the current year. It is due to follow this up with growth of 17% next year. This puts it on a PEG ratio of just 0.7 and means a higher dividend may be affordable. In fact, the company is expected to increase shareholder payouts by 84% during the next two years. This puts it on a forward dividend yield of 4.8%, which suggests now may be the perfect time to buy it.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.