MIDAS STOCK TIPS UPDATE: Our advice: Chesnara has 20 years of dividend growth

According to the latest research, there are only seven companies in the whole of Europe that have increased their dividends every year for the last 20 years. Chesnara is one of them.

Chesnara, a life insurance and pensions group formed in 2004, is an anagram of ‘make cash’ and its bosses are determined to make it live up to its name.

Dividends were generous from the start, with almost 12p during the first year of trading.

That price is set to double to 24p in 2023 and brokers are expecting further growth, with 24.7p forecast for this year, 25.4p for next year and more than 26p by 2026. With Chesnara shares at £2.60, the stock is clearly generating an impressive annual return of almost 10 per cent – ​​particularly attractive when most savings rates are less than half that and the broader stock market yields just over 3.5 per cent.

Chesnara offers life and pensions insurance to around one million customers in the UK, Sweden and the Netherlands. The group started out as an insurance business, Countrywide Assured, which was originally part of the Countrywide estate agency.

But there have been several acquisitions, and boss Steve Murray is interested in more.

Most of Chesnara’s businesses are closed to new members, so there are no marketing costs, profits are predictable over many years and the group can concentrate on making sure existing customers remain satisfied. However, by their nature, these types of businesses become smaller over time, as policies expire or retirees die.

Chesnara makes up for this with acquisitions, including some in the so-called “open” space, where companies are actively seeking new members. An occupational pensions division in Sweden does just that, as does Scildon, a Dutch subsidiary acquired from Legal & General.

Steve Murray, a lifelong insurance man, joined in 2021, when the company’s acquisition program was fairly dormant.

Since then, activity has picked up with a handful of carefully selected deals here in the UK and across Northern Europe.

More acquisitions are expected. Murray is in active talks with potential sellers and new finance director Tom Howard has ensured the group can act quickly if needed, with a substantial £200m reserve fund.

Last week, when reporting its half-year results, it expressed confidence in the future. Chesnara is generating plenty of cash, its balance sheet is strong and the amount of money under management has increased from £11.5bn to £11.9bn.

Murray is also focused on making Chesnara more efficient for the benefit of both clients and investors.

Appropriate acquisitions should help in that regard, creating economies of scale in the way the group’s businesses are run and policies administered.

Today, Chesnara is smaller than many other companies in the sector, but this may also play in Murray’s favour, as it allows him to evaluate deals that many larger companies simply wouldn’t take.

Midas Verdict: When Midas first looked at Chesnara, it was 2012 and the shares were worth £1.90. By 2018, the shares had risen to over £4, but today the price is just £2.60. That doesn’t seem to reflect either past performance or future prospects. Existing investors should hold on to their shares and remember that they have accumulated £2.40 of dividend payments over the past 12 years. New investors might also see value at current levels.

Listed in: Main market Heart: CSN Contact: chesnara.es