Take a look at the highest yielding UK FTSE 100 stocks right now and you’ll quickly see that the top spots are dominated by the country’s biggest insurers.
Companies like RSA Insurance Group, Aviva Insurance and Resolution top the list with very healthy dividend yields not all that far short of double figures.
In other words, these are crazily high yields for the low interest rate environment we’re all living in. And this at a time when savers and investors everywhere are desperately seeking higher yields.
So what’s the problem? Well maybe there isn’t one, but there’s no such thing as a free lunch as the saying goes – and no investment is ever without risk. And the way these insurance giants make a lot of their money is by investing the premiums we pay them after we’ve received our house insurance quotes, or car insurance deals etc.
And where do the insurers invest this money to try and make greater profits? Well that’s up to them of course and it’s all part of the business of running a big insurance company. But if they can’t get much of a return, and the insurance market itself is fairly competitive, then maybe they won’t be able to maintain these mega dividend yields without going back cap in hand to their investors for more money via a fundraising of some kind. And whenever the big insurers do this, their share price takes something of a hammering.
In other words, it’s all a bit of weighted gamble and depends just how conservative and sensible they’re being in investing their money in such troubled and uncertain times.
So next time you get your home contents insurance quote and you decide to shop around a little, you may decide to invest the savings you’ve made in one of these insurance giants for the dividend yield which could save you even more money. Then again, you may not and that, of course, is what makes the market!
