2 dividend dynamos I’d buy today

Direct Line Insurance Group (LSE: DLG) has taken off in start-of-month trade after a cheery reception to half-year numbers. The car insurance colossus was last 7% higher on the day above 400p per share, and dealing at its highest since March 2016.

Direct Line announced that gross written premiums rose 5% during January-June, to £1.694bn, a result that drove operating profit 9.5% higher year-on-year to £354.2m.

At its core Motor division, the company saw gross written premiums soar 9.9%, while the number of in-force policies here rose 4.9%. But this was not the only reason for celebration as its Home department enjoyed in-force policy growth of 1.5%, while gross written premiums expanded by 0.8%. And gross written premiums advanced 10.8%, and in-force policies 8%, at Rescue.

As a result the insurer elected to hike the dividend 38.8% to 6.8p per share, reflecting a departure in the company’s prior dividend policy.

Today the Board is rebasing the Group’s regular dividend upwards to reflect its confidence in the Group’s earnings and the progress the business has made since the IPO nearly 5 years ago when the Group’s dividend policy was previously set,” chief executive Paul Geddes said.

We aim to grow the regular dividend in line with business growth, which we expect to be in the region of 2% to 3% per annum over the medium term,” he added.

Delicious dividend forecasts

The City believes Direct Line has what it takes to deliver  healthy earnings growth in the near term and onwards. A 38% advance is chalked in for 2017 (resulting in a very-appetising forward P/E ratio of 13.6 times), and an additional 3% rise is anticipated for next year. And these positive forecasts are expected to translate into bumper dividends.

A 23.1p per share reward is predicted for this year, yielding a staggering 5.8%. The yield moves to 6.5% for 2018 thanks to expectations of a 25.8p dividend. And I reckon today’s update should see these forecasts receive a hefty shove higher.

With car insurance costs continuing to steadily climb — data last month from Willis Towers Watson and showed the average comprehensive policy explode 19% year-on-year in June, to £847 — I reckon Direct Line should continue to dole out appetising dividends.

Another motoring mammoth

AA (LSE: AA) is another stock expected to dole out mammoth dividends as earnings march northwards. Its shares may have fallen sharply on news of its executive chairman’s departure but until we know more details we can only go on the numbers.

In the year to January 2018 an anticipated 10% bottom-line improvement results in an ultra-cheap prospective P/E rating of 10.3 times. There is plenty for dividend hunters to get excited about as a consequence — a predicted 9.8p per share payment creates a market-topping 4% yield.

And helped by an expected 11% profits rise next year, the number crunchers are forecasting a 10.3p dividend, creating a 4.2% yield.

The huge investment AA has made in improving its technologies is clearly paying off handsomely, as is the company’s goal of improving brand awareness by lighting a fire under marketing investment. These steps helped the number of new members on the firm’s books shoot 14% higher last year.

And I am confident the breakdowns behemoth has plenty left in the tank, great news for both growth and income investors.

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Royston Wild 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.