Aon (AON) Boosts Shareholder Value With 11% Dividend Hike

In a bid to enhance shareholder value, Aon plc’s AON board of directors recently approved a 11% hike in the quarterly cash dividend. Following the latest hike, the payout presently stands at 51 cents per share compared with the previous payout of 46 cents.

The increased dividend, which marks the 10th straight year of dividend hike, will be paid on May 14, 2021 to shareholders of record as on May 3.

Prior to the recent hike, the insurance broker had raised quarterly cash dividend by 5% to 46 cents per share last year in October. The company has been paying regular dividends for more than two decades. Notably it has grown its dividend at a 10-year CAGR of 13%.

Besides hiking dividend, Aon has a strong history of enhancing shareholder value through share buybacks since the inception of its Repurchase Program with an initial authorization of $5 billion in 2012. Following the same, the authorization was further enhanced by $5 billion each in November 2014 and June 2017, respectively. With the latest $5 billion share buyback program announced last November, the total repurchase authorizations have attained a value of $20 billion under the Repurchase Program.

However, the COVID-19 induced market volatilities had left most insurance companies with no other option than to temporarily halt their share buyback programs. Aon had to resort to similar tactics in a bid to preserve its cash reserves and put its share buyback activities to a temporary halt in the first half of 2020. Nevertheless, as the markets started gradually recovering, the company recommenced share buybacks in third-quarter 2020.

It is worth mentioning that the company has bought back 3.7% of weighted average ordinary shares outstanding worth around $1.8 billion during 2020. The company had roughly $5.3 billion remaining under its Repurchase Program as of Dec 31, 2020. These initiatives clearly hint toward the operational and financial strength of the company.

Moreover, a robust liquidity standing backed by a strong balance sheet and solid cash flows have enabled Aon to support not only growth initiatives such as buyouts and collaborations but also has paved the way for accelerated and prudent capital deployment measures. The company exited 2020 with $884 million in cash and cash equivalents, which improved 11.9% from 2019-end.

Also, its return on equity — a profitability measure of how prudently the company is utilizing its shareholders funds — is 64.6%, higher than the industry’s average 26.9%.

Shares of this Zacks Rank #3 (Hold) insurance broker have gained 13% in the past six months compared with the industry’s rally of 12.9%. Moreover, we believe the company is well-poised for growth in the days ahead on the back of a well-diversified portfolio constantly growing with buyouts and collaborations, and divestitures aimed to streamline operations.

Stocks to Consider

Some better-ranked stocks in the insurance space are eHealth, Inc. EHTH, Brown & Brown, Inc. BRO and First American Financial Corporation FAF. While eHealth sports a Zacks Rank #1 (Strong Buy), Brown & Brown and First American Financial carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

eHealth, Brown & Brown and First American Financial have a trailing four-quarter earnings surprise of 67.93%, 16.55% and 15.86%, on average, respectively.

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