Buying any FTSE 100 stock after the recent market crash might seem like a risky prospect. Indeed, the coronavirus crisis is still rumbling on, and the outlook for the UK economy is uncertain.
However, some companies have fared better than others in the crisis. There’s one FTSE 100 income and growth champion that looks particularly well placed to stage an impressive recovery over the next few years.
FTSE 100 champion
Shares in insurance giant Admiral (LSE: ADM) have outperformed the wider FTSE 100 this year significantly. The stock is up 3% year-to-date, that’s compared to a -18% return for the FTSE 100.
Admiral is one of the few blue-chip companies that has managed to navigate the crisis quite well. The UK’s largest car insurance business has benefited from a reduction in the number of hours car owners are driving. This has resulted in fewer accidents and payouts.
At the same time, consumers have continued to shell out for car insurance because it remains a legal requirement in the UK. This combination of a steady income stream and falling costs has helped support the group’s outlook for the year.
But it isn’t business as usual for Admiral. The FTSE 100 business has seen a significant drop-off in claims. Therefore, it decided to refund customers to the amount of £25 per vehicle insured a few weeks ago. Management has also committed £80m for other measures to help customers. These include price cuts and help for NHS workers.
This might hit the company’s profits for the full year, but they seem to have gone down well with customers, which should help reinforce the firm’s market position.
Admiral has also decided to pull its latest special dividend, although it is maintaining its regular payout, despite being urged by regulators to reconsider shareholder payments.
The final dividend of 56.3p is a welcome relief for income investors at a time when so many other FTSE 100 dividend champions are cutting their payouts.
Admiral’s dominance of the UK insurance market suggests that this firm can generate healthy returns for investors over the long term.
Over the past 10 years, shares in the company have produced a total annual return of 10% on average as the business has gone from strength to strength. At this rate of return, my figures show it would take just 31 years to turn an investment of £50,000 into £1m.
I think it’s highly likely that the business can keep up this rate of growth. Admiral has launched new businesses in Spain, Italy, France and the US during the past few years. These firms could help power the group’s growth over the next few years.
The FTSE 100 giant has also made substantial investments in its business here in the UK, including the launch of a personal loan business and home/travel insurance.
As such, based on its income and growth credentials, I’d buy Admiral as part of a diverse portfolio today.
If you're looking for other income stocks to add to your portfolio alongside Admiral, we have some ideas.
With global markets in turmoil as the coronavirus pandemic tightens its grip, turning to shares to generate income isn’t as simple as it used to be…
As the realities of ‘life under lockdown’ begin to bite, many of the stock market’s ‘go-to’ high-yielding companies have either taken an axe to their dividend pay-outs… or worse, opted to suspended them altogether – for the near-term at least.
With so many blue-chip and mid-cap companies scrambling to hoard cash right now, where are we income investors to turn for decent yields?
Fortunately, The Motley Fool is here to help…
Our analyst has unearthed what he believes could be a very attractive option for income- seeking investors – a company that, in his view, boasts a ‘reliably defensive’ business model, combined with a current forecast dividend yield of 4.2% to boot!*
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This business even has form in riding out this kind of situation, too… having previously increased sales and profits back in 2008 and 2009 when the world was gripped in the deepest economic crisis since the Great Depression.
*Please be aware that dividends are variable and not guaranteed.
Rupert Hargreaves owns shares in Admiral Group. 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.