You should buy insurance stocks for their dividends

Every investor needs to consider their aims and goals when investing. For many investors, the goal is earning a secure income for retirement, and certain companies are more likely to offer it than others.


A reliable dividend stream is one of the reasons Aussie investors gravitate to insurers. Large general insurers like Insurance Australia Group Ltd (ASX: IAG), and QBE Insurance Group Ltd (ASX: QBE) usually carry no debt, and have billions in cash and bonds on their balance sheet. Suncorp Group Ltd (ASX: SUN) is another major insurer worth considering, although it also has banking operations which make it a more complex beast.

If it’s a secure investment you’re after, it’s hard to look past a company like Insurance Australia Group which has $13 billion in investments on its balance sheet, and $6 billion in net assets. The company could hypothetically lose a billion dollars next year and still have zero risk of going bankrupt.

What’s more, products like vehicle and home insurance are must-owns for Australian homeowners, and in some cases like Compulsory Third Party (CTP) insurance, their purchase is mandated by law.

As the largest insurers in the country, both businesses enjoy scale advantages that smaller companies lack. Thus, both Insurance Australia Group and QBE enjoy earnings that are likely to be consistent in both boom times and a downturn.

Today, they pay a 4% dividend, fully franked (IAG), and 4% franked to 50% (QBE). Whether you choose one or the other would depend on if you preferred strong international diversification (QBE), or an ANZ-centric business with promising small businesses in Asia (IAG).

Even so, I'm not interested either business because - despite their reliable dividends - they are unlikely to generate any real growth for shareholders in my opinion. Instead I'd prefer to buy these 3 companies with growing profits and dividends:

Top 3 ASX Blue Chips To Buy In 2017

For many, blue chip stocks means stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2017."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

If you're expecting to see the likes of Commonwealth Bank, Telstra and Wesfarmers shares on this list, you'll be sorely disappointed. Not only are their dividends growing at a snail's pace, their profits are under pressure too due to the increasing competitive environment.

The contrast to these "new breed" blue chips couldn't be greater... especially the very real prospect of significant share price gains, something that's looking less likely from the usual blue chip suspects.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia owns shares of Insurance Australia Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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