DirectLine (LON:DLG) Group PLC has returned ~10% via dividend to investors for its FY2017 (given today’s share price of ~358p). I have no doubt that FY2018 will be similar, and that investors can continue to expect great rewards from the insurance based group that was started back in 2012.
Company Background;
DirectLine Group PLC was started in 2012 after RBS was required to divest some of its business. The company owns several brands, including DirectLine, Churchill, Green Flag, NIG and Privilege and offers various types of insurance products such as motor and home insurance,. The company also offers other products such as roadside assistance and recovery services.
FY2017 results
For the year ending 31 Dec 17, the company reported in its results, that the dividend of the final quarter would be up 40.2% to 13.6p, bringing the annual dividend to 20.4p. There was also an additional special dividend of 15p, resulting in the total dividend of 35.4p for the FY (up from 24.6p for FY2016). FY PBT for FY2017 grew to £539m in 2017, up from £353m in 2016.
Other stats
The company currently has a market cap of £4.92Bn and a P/E ratio of 11.4 in comparison to a Aviva, which has a higher P/E ratio of 14.98 at a valuation of ~£20bn and Legal General, which has a P/E ratio of 10.3 at a valuation of ~£16bn.
First quarter update
Earlier this month, the company released its first quarter results and the numbers were very pleasing. Although gross premiums were down, its own brand policies increased by 5%. The company also reiterated its full year year targets.
With the expected ~10% dividend return for FY2018, DirectLine looks to be a great dividend play. However, I also believe that the company’s share price has the potential to increase considerably in the coming years because of the company’s potential for growth. The company’s products are currently limited to certain insurance sectors, but the company could further increase its revenue if it ventures into another sectors, similar to its peer groups Aviva and Legal General (e.g life insurance etc)
I am not alone in my thinking that the share is undervalued. At 4traders, the current average target price is £4.18 , a price that’s roughly 17% over current share price. The lowest target price suggested, is actually around the current share price.
In summary, it looks like DirectLine is a good buy for an investor who is looking to build up a decent portfolio of stocks for dividend income. The company’s dividend over the past couple of years has been growing, and the current share price looks like a great entry point for the new investor.
As always though, please do your own research before buying/selling this share; the opinions above are only my personal views and should not be considered as advice.
