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Aon to Reward Shareholders With 15% Increase in Dividend

Zacks Equity Research

Aon plc AON recently announced a 15% annual dividend hike, paid per quarter on its outstanding Class A Ordinary shares, in a bid to return more value to its shareholders. Previously, the company approved an 11% dividend raise on Apr 13, 2018.

The company will now reward investors with a dividend of 44 cents per share compared with the earlier paid amount of 40 cents. Shareholders of record as of May 1, 2019 will have this meatier dividend in their pockets on May 15, 2019.

This insurance broker boasts a solid track record of dividend hike approvals each year since 1999, backed by its robust operating strength. The recent one marks the company’s 21st consecutive year of dividend increase. Aon’s payout history witnessed a six-year CAGR (2013-2019) of nearly 16.6%.
Based on the closing share price of $172.79 as of Apr 8, 2019, the payout rise translates to a dividend yield of 1%.

Aon presently has a dividend yield (5-year average) of 1.1%, above the industry average of 0.64%. Notably, the company paid dividends of $382 million, $364 million and $345 million in 2018, 2017 and 2016, respectively.

Dividend hikes and share buybacks not only testify to a company’s operational and financial strength but also make a stock attractive for yield-seeking investors. Aon’s consistent dividend payments have been largely supported by its solid cash position. The company has been witnessing growth in free cash flow over the past few years. Although the metric slipped in 2017, the same again skyrocketed 198% year over year in 2018 to $1446 million.  

As of Dec 31, 2018, the company had worth of $4 billion stock left under its share repurchase program. It bought back shares worth $1.4 billion during 2018. Further, Aon's share buyback program favored its bottom-line improvement. Its balance sheet strength, boosting its efficient capital management, should attract investors’ attention.

Shares of this Zacks Rank #3 (Hold) company have rallied 25.7% in a year's time, outperforming its industry's growth of 23.1%.


Stocks to Consider

Investors interested in the same space might consider some better-ranked stocks like RLI Corp. RLI, Berkshire Hathaway Inc. BRK.B and Argo Group International Holdings, Ltd. ARGO, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

RLI Corp underwrites property and casualty insurance in the United States and across the globe. The company delivered a beat in the last four quarters, the average being 144.1%.

Berkshire Hathaway engages in insurance, freight rail transportation and utility businesses. It pulled off average trailing four-quarter earnings surprise of 11.26%.

Argo Group underwrites specialty insurance and reinsurance products in the property and casualty markets. The company came up with average four-quarter positive surprise of 225.1%.

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