In order to share more profits with shareholders, global risk management and insurance brokerage provider, Aon plc (AON) increased its annual dividend by a significant 43%.
In keeping with this annual hike, management declared a quarterly cash dividend of 25 cents per share, higher than 18 cents paid on Feb 17, 2014 to shareholders of record as of Feb 3, 2014. The increased quarterly dividend will be paid on May 15, 2014, to shareholders of record as of May 1, 2014.
Based on Friday’s closing share price of $79.43, the increased dividend implies a dividend yield of 1.3%, almost at par with that of another player in the industry, Brown & Brown Inc. (BRO).
With this hike, the current annual dividend equates to $1.00 per share, up from 70 cents paid in 2013. The last dividend hike was announced in April 2013 when Aon recorded an 11% increase in its quarterly dividend. If we peek into the company’s history of dividend hikes, Aon has been paying dividends consistently for a long time.
After recording almost constant dividends since 2002, the company initiated a 5% dividend hike in 2012. Since then, the company has not deferred from increasing it dividends, which have risen at a two-year CAGR of 29%.
The consistent dividend hikes represent the financial strength and long-term outlook of the company. Along with dividend payouts, the company also has a sound share repurchase structure. Aon has ample liquidity for these payments with operating cash flow, and cash and cash equivalents at end-2013 being higher than that in 2012 and a low debt profile. We expect expense and capital management to continue to boost the operating leverage and earnings in the upcoming quarters.
Other insurance brokers have been also active in hiking dividends. Among other industry majors, Marsh & McLennan, Inc. (MMC) raised its dividend by 8.7% to 25 cents per share in May 2013 while Erie Indemnity Co. (ERIE) increased its dividend by 7.2% to 64 cents per share in July 2013.
Aon currently carries a Zacks Rank #3 (Hold). Erie Indemnity and Marsh & McLennan are among the better-ranked stocks in the sector that carry a Zacks Rank #2 (Buy).