Kames: Why insurers are the key to delivering dividends in 2016 and beyond
The insurance sector offers investors some of the best opportunities to generate an attractive income from UK companies, Kames Capital’s UK Equity Income fund managers have said.
Douglas Scott and Iain Wells believe the UK’s life insurance sector is now in rude health having come through various regulatory headwinds, with attractive and climbing dividends on offer.
“We think equity markets will deliver modest positive returns over the year, albeit in a volatile manner, with income and alpha likely the key components of the Fund’s return,” Scott said.
“In terms of generating that income, life insurers offer high and growing dividends, with the added advantage that regulatory and budget worries have now come and gone, so we are overweight the sector.”
Within the sector, the fund holds stocks including Legal & General as well as Phoenix, which currently has a 5.8% dividend yield.
As well as life insurance, the duo also have a number of holdings in the non-life space, including Novae and esure.
Scott said Novae, a small and nimble London based insurer, had continued to outperform thanks to strong results and the payment of a large special dividend.
Meanwhile esure, the car, home, travel, and pet insurance group, has performed strongly throughout 2016 thanks to steadily improving pricing in the UK motor insurance market, as well as positive developments in its price comparison business Gocompare.
Scott said it was crucial for investors to find such businesses which can grow regardless of the economic backdrop in the UK as the team is not forecasting a major uptick for the wider economy.
“We continue to position our portfolios for an environment of low, but not no, economic growth,” he said.
“Over time we believe the market will reward those stocks that can deliver growth and/or enhanced shareholder distributions in a still challenging macro environment where both growth and yield are scarce.”