Saga share price falls despite rewarding investors with an increased dividend

Oliver Gill
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Cruise ships Disney's Wonder (L) and Car
Saga is reknown for its cruise-based holidays focussed on a more mature clientele (Source: Getty)

Insurance and travel firm Saga rewarded investors by hiking its dividend after posting a near 10 per cent increase in profits for the year.

However, shares in the firm staggered, falling around two per cent in trading.

The figures

Profit before tax of continuing operations rose by 9.7 per cent to £193m, while underlying profit before tax increased by 5.6 per cent to £187m.

Earnings per share increased by six per cent to 14.1p with dividends hiked by 18 per cent to 8.5 per cent.

Operating cash flow rose by over a fifth, from £178m to £218m, with net debt reducing 15 per cent to £465m.

Why it's interesting

Insurance investors often love the sector because they can bank on a decent dividend. In particular they like firms that have less exotic growth plans and can count on more mature, but more consistent, markets.

So the news that Saga's dividend will be almost a fifth higher will likely provide a nice surprise for its shareholders.

Traditionally, the firm focussed on selling insurance policies to older, and theoretically less risky, customers. It coupled this with sending them on a Caribbean cruise and building a holiday brand.

Read more: Saga waves goodbye to EY after 10 years

"It’s a strategy that seems to be working well," said Hargreaves Lansdown equity analyst Nicholas Hyett, who added Saga has also made a key change to its insurance sales.

He said: "Historically Saga underwrote its own insurance contracts, taking advantage of the lower risk profile of more mature customers.

"However, it’s increasingly funnelling customers through to a panel of independent underwriters who compete to offer the best price, keeping only the lowest risk customers for itself. It looks like that shift is paying off, with the significant improvement in motor broking profits more than offsetting the decline in underwriting this year.”

What the company said

Chief executive Lance Batchelor said:

For the third successive year since IPO, we have delivered a strong set of financial results.

I am very pleased that the dividend has again materially increased.

"Our performance has continued to prove the strength of the Saga business model, which builds multi-decade relationships with our target demographic through a range of excellent products and services.

Read more: Saga investors rewarded with 4.1p dividend

"This breadth allows us to deliver consistently for our shareholders, despite the ebbs, flows and challenges in the insurance and travel markets.

"Our confidence in continuing to deliver a consistent financial performance in 2017 is strong."

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