The Motley Fool

Could ignoring this FTSE 100 stock and its 6% yield be the biggest mistake you make for 2020?

Admiral Group (LSE: ADM) is a brilliant British blue-chip that’s picking up a head of steam as we begin to look ahead into 2020.

We all know how ultra-competitive the UK car insurance market is and this, allied with Admiral’s decision to raise premiums to absorb future claims costs, has caused sales growth to slow to a crawl here of late (less than 1% in the first half). The FTSE 100 firm’s ability to generate any sort of expansion in this landscape should still be commended, mind, though this robustness isn’t why I’m a big fan of the blue-chip.

Claim your FREE copy of The Motley Fool’s Bear Market Survival Guide.

Global stock markets may be reeling from the coronavirus, but you don’t have to face this down market alone. Help yourself to a FREE copy of The Motley Fool’s Bear Market Survival Guide and discover the five steps you can take right now to try and bolster your portfolio… including how you can aim to turn today’s market uncertainty to your advantage. Click here to claim your FREE copy now!

What really stood out from August’s interims was the rate at which it’s adding motor customers from overseas to its book, the number swelling 21% year-on-year between January and June, to 1.36m, and revenues consequently growing by almost a quarter to £319.5m.

Euro thrash

Through heavy marketing and brand investment, and the huge efforts it’s made to improve the customer experience, Admiral’s made huge strides when it comes to turning around its troubled businesses in Spain, France and Italy. The business has managed to attract a record 209,000 customers over the past 12 months and recent evidence suggests that it’s continuing to gather momentum despite difficult market conditions in these regions too.

Let’s not get too carried away though. After all those overseas territories account for less than 20% of Admiral’s group revenues versus the 72% that its UK motor division is responsible for. And so that breakneck pace it’s witnessing overseas is unlikely to save the insurer’s bacon (or its bottom line) should those tough British trading conditions worsen considerably.

That said, I believe a case could be made that the blue-chip’s undemanding valuation (it currently carries a forward P/E ratio of just 16.8 times) reflects this danger.

Attractive value and huge dividends

At these levels, Admiral’s not ‘cheap cheap,’ sure. But the rate at which international business is booming, and trade is recovering at its household division (an 18% customer increase here in the first half prompted a swing into a £4.2m profit from a £1.9m loss a year earlier) means that long-term investors should be at least intrigued by the insurer at these prices.

And further signs of progress in these areas could keep its share price surging into 2020 (Admiral’s value has popped 7% higher in the week since those bright half-time financials were revealed).

One final thing: Admiral’s bright earnings outlook (and its rock-solid balance sheet) gives dividend-hungry investors plenty to cheer too. The firm’s expected to keep raising the annual dividend in 2019, to 131.4p per share from 126p last time out. And this results in an enormous 6.1%. There’s no shortage of great Footsie income shares to buy today, though I reckon this particular one has what it takes to make shareholders very, very happy next year and most probably beyond.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to read our presentation.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Admiral Group. 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.