This week we are going to cover the highest dividend paying sector in the market and that is the life insurance sector. In general, this sector has been shunned by the market, but the yield attraction means that it cannot be ignored. All of the stocks mentioned are worthy of investment on a yield basis, but we have to get it down to just one.
We use the DividendMax Optimizer to select on Sector, globally. This reveals 17 stocks which is too many, so we will reduce the list by only selecting those with an annualised yield at the time over 6%.
It is noticable and interesting that U.S. life insurers are only yielding around 2%. This reveals nine companies, mostly from the U.K. In alphabetical order this is Allianz, Aviva, Axa, Chesnara, Legal & General, Phoenix Group, Standard Life, Resolution and RSA Group.
Next, we are only interested in companies that are forecast to increase their dividend in the coming year. This eliminates Phoenix Group. We have also previously recommended Resolution Limited on the 10th December 2012 in our ‘divis that are mad as a box of frogs’ article and whilst it still remains attractive, we dont want to repeat ourselves. As an aside it is worth pointing out that Resolution has risen from 244p to 269p today, a rise of just over 10%. (the FTSE is up just over 6% in the same period).
We have two European stocks for those who are interested. Allianz of Germany and Axa of France. They are the two biggest companies in our selection at 47 and 32 billion Euros market caps respectively. Both have solid dividend cover at over 2 and both are forecast to increase their dividends by around 4%. Neither will be dividend of the week.
This leaves Aviva, Chesnara, Legal and General and Standard Life. Our final selection criteria will be dividend cover greater than 2 and this eliminates Chesnara and Standard life leaving us with a choice of Aviva and L&G.
Aviva is in the process of a major restructuring of its business and it is therefore very difficult to compare like with like. Aviva has risen from 255p to 371p (45%). Legal & General has risen from 106p to 151p (42%) from the 52 week low to today’s price. Aviva has the higher annualised yield on the 3 dividend basis (10.5% against 7.55%) Remember that the annualised yield takes account of the timing of the dividends. L&G has the higher dividend cover at 2.3 compared to 2.1. Both companies will benefit greatly from the rise in equity markets seen last year and so far this year.
A choice has to be made and in my view Legal & General just edges it. The asset sales at Aviva demonstrate to me a management that is trying to undo the wrongs of the past and this unwind creates uncertainty in my view. In its recent Q3 interim management statement L&G appears to be firing on all cylinders. Legal and General final results are on 6th March and Aviva’s are on the 7th March. There is not much between them and investors may want to split their investment across the two firms. However, for me, Legal & General just about gets the nod for dividend of the week.