Lasaco Assurance Plc, Linkage Assurance Plc, Veritas Insurance Plc, and Cornerstone Insurance, are the best insurance dividend paying stocks so far, but sector players’ payout to shareholders is abysmally poor.
Lasaco has a dividend yield of (10.31 percent); Linkage, (9.80 percent); Veritas, (8.31 percent); Cornerstone, (7.14 percent), according to data gathered from NGXASI.
A high dividend paying stock provides steady income, many are in defensive sectors that can weather economic downturns with reduced volatility. Dividend-paying companies also have substantial amounts of cash, and therefore, are usually strong companies with good prospects for long-term performance.
In the United States, Asia, Europe, and some sub-Saharan countries, Insurance companies produce a large profit, because they make money in two ways. First, from the premium they collect from policy holders for indemnifying them against unforeseen losses.
Second, from investment returns that they generate by investing the part of the premium in investment securities.
However, insurers in Nigeria are not making enough money to pay jumbo dividends to their shareholders. This is because of a slim profit margin as the majority of them do not have the cash flow to invest stocks, bonds, and real estate to generate significant investment income.
Another reason is the weak macroeconomic environment and lack of trust for the claims process in a country where over 50 percent of a population of 200 million live on less than $1.98 a day.
No insurer pays a dividend of N3 per share, which validates investor apathy towards sector players shares.
Analysts are sanguine that the new minimum capital requirements by the regulator will spur mergers and acquisition needed to unlock the potential in a sector that contributes less than 1 percent to the economy.
But business combinations have been slow over the past two years. This is because big firms do not see value in the ones and they see them more as a liability and that there is no synergy.
Similarly, the sector remains underpriced with the price to earnings ratio (P/E) and price to book ratio (PBV) of 5.60x and 6.0x respectively, according to data from Meristem Securities.
That compares with: South Africa (PE:11.0x, and PVB: 1.90x), Ghana (PE:0.80x), Egypt (PBV:1.00x), Kenya (0.70x), Brasil (PVB:8.30x, PVB, 2.0x), China (7.30x, PBV, 1.00x), and India (PE:36.20x, PVB:5.10x), according to data from Meristem.