Prudential: An Excellent ‘Buy and Forget’ Investment

12/20/2013 12:00 pm EST


After searching for investments throughout the UK insurance sector, Rupert Hargreaves of The Motley Fool UK, has found one that, not only has had success over the past five years, but one he thinks is poised for even more success in the years to come.

Prudential (LSS:PUK) (NY:PUK) is one of the UK's most successful insurance companies, having been around since 1848, and nearly doubling its earnings during the past five years.

Targets for growth

What's more, Prudential is driving ahead with growth, and recently announced another four-year roadmap, aiming to expand the company's global footprint and increase cash generation. In particular, during the next four years, Prudential is planning to expand its Asian business, targeting profit growth of 15% per annum and £900m to £1.1bn in cash generation by 2017.

In addition, the company is expanding into new markets, most recently acquiring an insurer within Ghana, taking Prudential into sub-Saharan Africa for the first time. Prudential is also growing its footprint within Saudi Arabia. Alongside this growth, Prudential aims to generate £10bn in cash from operations during the next four years, that's one third of the company's current market capitalization.


However, if Prudential is going to be able to achieve these optimistic growth plans, the company is going to need a great management team. Luckily, a great management team is exactly what the company has.

Prudential's management team is led by chief executive Tidjane Thiam, who is highly respected by the city. Indeed, under Mr. Thiam's leadership, Prudential has met five of the six targets the company set out for itself four years ago.

Furthermore, it would appear as if Mr. Thiam is committed to Prudential and the company's growth, as last year, he turned down a personal request by Barrack Obama to take a high-level position at the World Bank. He has also chaired the G20 high-level panel on infrastructure investment.

Shareholder retunes

Unfortunately, Prudential only offers a dividend yield of 2.4% at present, below that of its peers, such as Aviva (AV) and Legal & General (LGEN). Moreover, city analysts only expect Prudential to increase its payout by 10% this year and 5% during 2014.

However, as Prudential is aiming to generate £10bn in cash during the next four years, many city analysts expect the company to either raise its dividend payouts or offer a special dividend to investors.

Still, even if Prudential does not return additional cash to investors, shareholders can sleep soundly knowing their payout is safe, as Prudential's current dividend payout is covered two-and-a-half times by earnings. So, a dividend cut is unlikely anytime soon.

Foolish summary

So overall, Prudential's history, performance during the past five years, and targets for growth during the next four years, make the company look highly appealing as a long-term investment.

Rupert does not own any share mentioned within this article.

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