In order to increase shareholders’ worth, the board of directors of Aon plc AON has approved a 20% increase in its quarterly cash dividend. The hike translates into a quarterly cash dividend of 30 cents per share, up from 25 cents paid on Feb 2, 2015. The raised dividend will be paid on May 15, to shareholders on record as of May 1, 2015.
Based on the closing share price of $98.25 as of Apr 10, 2015, the annualized dividend of $1.20 translates to a yield of 1.22%, in line with the industry average. It is however higher that of some other insurers like Employers Holdings Inc. EIG, Cigna Corp. CI and National General Holdings Corp. NGHC with yields of 0.89%, 0.03% and 0.42%, respectively.
With this hike, the current annual dividend of $1.20 per share, increased from $1.00 paid in 2014. The last dividend hike was announced in April 2014 when Aon recorded a 43% increase in its quarterly dividend. 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. Thereafter, the company has been consistently hiking its dividend every year in April. The latest dividend declaration translates into a three-year CAGR of 26%.
The consistent dividend hikes represent the financial strength and strong operating results of the company in 2014 as well as its long-term outlook. Aon will require $89.9 million every quarter for the dividend payment, based on the outstanding share count of 299.6 million as of Dec 31, 2014. Aon has ample liquidity for the payment. We believe that the dividend hike should boost investor confidence and thus help in stock price appreciation going forward.
Along with dividend payouts, the company also has a sound share repurchase structure. The company returned a record amount of capital to its shareholders in 2014. We expect that strong free cash flow generation will help the company engage in more buybacks and dividend payouts so as to enhance its shareholder value.
Aon currently carries a Zacks Rank #3 (Hold).
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