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Why I’d invest all I could in this high yielding share

Andy Ross
Stack of new bank notes

FTSE 100 companies are paying record dividends. The average yield across all 100 companies is now over 4%, which is good for investors looking for income now, but there is a catch. Falling dividend cover – the amount of earnings needed to sustainably pay out dividends to investors – has tended to fall.

However, I think there’s one share that combines great, sustainable income, with the potential for growth – a combination that I think will help any investor make money. That company is insurer Admiral (LSE: ADM).

Rewarding investors

The dividend is far above the FTSE 100 average at around 5.5% when you include special dividends. It’s one of the big attractions of buying into the share price. That’s even more the case if for some reason the shares drop in the near term, which will push the yield up further.

Admiral has a good track record of paying a dividend. The exact yield fluctuates with the share price, but is typically near to 6% – as it is now. Obviously the share price affects exactly what yield you get, but you can be confident that it’ll be higher than average.

The other good news regarding the dividend is that it has historically tended to be well covered by earnings – often by 1.5x or more. What this means is there’s no immediate prospect of the dividend being cut. All being well with the business, the dividend should keep on growing. Between 2014 and 2018, the payout went from 98.4p to 126p, which is quite a jump.

A lot to like

Things are going well at the insurer and there’s certainly more to the investment case than just the juicy dividend.

This month, Admiral pleased investors with an upbeat trading update. It revealed annual profit would be higher than it had previously expected. This is a result of lower motor injury claims. The FTSE 100 company said it expected pre-tax profit for the year to the end of December to be between £510m and £540m, an increase of between 6% and 13% from the year before.

The improved outlook marks a big improvement for the group. The results released in August last year were far gloomier. Back then changes to the Ogden rate were costing the insurer much more money – in the first half, it cost it £33m. The improved tone is very welcome and a good sign for investors.

With the group also expanding into comparison websites, loans and international car insurance, there’s plenty of room for growth at Admiral in the future, I feel. 

I think the combination of income and growth potential and the way Admiral has been a well-run business for a long time all combine to make it a potentially very profitable investment and it’s one high-yielding share I think has a very bright future.

The post Why I’d invest all I could in this high yielding share appeared first on The Motley Fool UK.

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Andy Ross owns no share 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.

Motley Fool UK 2020