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The insurance sector in China has a long runway for growth. Of the 1.4 billion people in China, only around 114 million have life insurance, for example. Given the potential growth in the sector, the shares of many leading insurance companies in China could prove to be good investments.
Among the leaders, Ping An Insurance Group Co of China Ltd (SEHK: 2318), AIA Group Limited (SEHK: 1299), China Life Insurance Company Limited (SEHK: 2628) and China Pacific Insurance (Group) Co (SEHK: 2601) each pay a dividend.
Here’s a closer look at these four big-hitters.
Ping An Insurance
Ping An is both a leading insurance company and a fast-growing fintech giant. The company regularly spends billions on R&D to harness technology to improve its operations in existing sectors and new sectors.
Although it typically pays 30% or less of its earnings in the form of dividends, Ping An has a dividend yield of around 2.1% at its current price. The company has also been a dependable dividend payer of late, with its dividend rising every year from 2015 to 2018.
Due to earnings growth, Ping An’s normal dividend per share (DPS) has risen from HK$0.654 in 2015 to HK$2 in 2018. And 2019 could be more of the same given that Ping An’s interim 2019 DPS of RMB 0.75 (HK$0.84) was higher than 2018’s interim DPS of RMB 0.62 (HK$0.71).
If Ping An maintains its payout ratio, the company’s dividend will very likely increase quickly due to the company’s earnings growth. Although it is already a big company, Ping An’s basic operating earnings per share for the nine months ended 30 September 2019 rose 21.9% year-on-year to RMB 5.85.
For many investors, AIA combines the best of both worlds. Not only is AIA a leading insurer with exposure to both Greater China and Asia, but the company is also a solid dividend payer. Due to steady earnings growth, AIA’s total DPS increased by 3.7x from 2011 to 2018.
Source: AIA 2018 annual report
Due to its operating profit after tax growth of 12% year-on-year for the first half of 2019, AIA raised its interim DPS 14% year-on-year to 33.3 HK cents. Shares currently have a forward dividend yield of around 1.4%.
China Life Insurance
As one of China’s largest life insurance companies, China Life benefits from enormous economies of scale. If the firm develops a new product, it can often cross-sell to its customer base very cost-effectively.
China Life’s over 1.5 million agent channel sales force also provides the insurer with a valuable hedge against foreign competition.
Despite the macro slowdown in China, the company reported a great first half for 2019. The value of first half-year sales rose 22.7% year-on-year to RMB 34.57 billion (US$5 billion) and net profit attributable to equity holders of the company rose 128.9% year-on-year to RMB 37.6 billion.
While China Life only has a forward dividend yield of around 0.9% at its current price, its shares trade at 1.5x price-to-book (PB), versus China Life’s five-year historical average of 1.77x PB. One downside for China Life, however, is that it’s a state-owned enterprise.
China Pacific Insurance
China Pacific Insurance is an integrated insurance company that specialises in both property and life insurance. The company has been a great performer of late, with shares rising around 30% over the last year.
One potential catalyst for China Pacific Insurance is a possible listing in London. The company said in September 2019 that it planned to list global depository receipts (GDRs) on the London Stock Exchange.
Of the four stocks mentioned, China Pacific Insurance has the highest forward dividend yield of around 3.6% at its current price. The insurer’s dividend has increased every year from 2016 to 2018.
Investing in leading insurance stocks offers investors an opportunity to benefit from the secular rise of Chinese incomes as well as the structural increase in Chinese insurance penetration rates.
Among the many Chinese insurance companies listed, Ping An, AIA, China Life, and China Pacific Insurance pay attractive dividends and are worth a closer look for any long-term investor.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Jay Yao doesn’t own shares in any companies mentioned.