Admiral shares slumped 5.5% yesterday. Here’s why I’d buy this dividend star now

Yesterday, the worst performing stock in the FTSE 100 was Admiral (LSE:ADM). The share price fell 5.5% following a large sale by shareholder Munich Re. After trading comfortably above 3,000p earlier this week, Admiral shares closed the day at 2,879p. Although this is a short-term hit, I think it provides a good buying opportunity for investors like myself who don’t currently own  of the shares. Here’s why.

Why Admiral shares fell yesterday

The slump in Admiral stock came as a large shareholder sold 12.1m shares. Munich Re is a business with close ties to Admiral, and is a company that Admiral uses to underwrite some car insurance business, via subsidiaries. They’ve worked together for many years and Munich Re still owns 18m shares in the firm, even after the sale yesterday.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

There isn’t any clear reason for the share sale that I can see. Maybe the board felt that it was the right time to reduce exposure to Admiral, given the amount of business the two do with each other. 

After all, in its H1 results, Admiral announced that arrangements with Munich Re would be extended. Some business will be done on a co-insurance basis through to 2029. So with such a partnership, the decision might have been taken to sell some stock to reduce the risk.

Ultimately, Munich Re still has a large holding in the UK firm. I’d be much more concerned if it had sold its entire stake in the business. As it stands, I don’t see anything worrying about the share sale.

Why I’d buy now

Admiral shares have been appealing to me in recent months. In fact, I wrote a piece last week singing its praises. For example, I think that the company could do well if we see advice from the Government to work from home during the winter. Higher infection rates seen recently wouldn’t make this idea that unlikely. With lower car usage, lower claims could see Admiral boost profitability. This was seen during periods of 2020.

Another reason I like Admiral shares is for the dividend. Thanks to the share price dip, the dividend yield currently sits at 5.26%. This is almost 2% higher than the FTSE 100 average yield. In fact, over the past decade, the lowest the dividend yield has been is 2.5%. From my point of view, this is a sustainable dividend that is likely to be continued to be paid well into the future.

One risk is that Admiral shares could be considered overvalued. The P/E ratio sits just below 14. Although this isn’t overly rich when looking at the whole market, it could be seen as expensive for the industry. For example, Aviva currently has a P/E ratio of 5.5, with a similar dividend yield.

Overall, I’d still favour buying Admiral shares now thanks to this latest dip and am considering doing so.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

jonathansmith1 has no position in any share mentioned. The Motley Fool UK has recommended Admiral Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Comments are closed.