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AON Rewards Shareholders With Dividend Hike, Boosts Buyback

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Aon plc (AON - Free Report) recently announced a 10% dividend hike on outstanding Class A ordinary shares. The major global professional services company has also approved a new $7.5-billion share buyback program. These strategic moves will likely boost shareholder value.

Dividend Hike

The quarterly cash dividend hike brings the amount to 56 cents per share ($2.24 on an annualized basis), up from the previous figure of 51 cents. Based on the stock’s Feb 18 closing price of $283.80, the new dividend on Class A ordinary shares will yield 0.8%, below the industry average of 1.2%. Its dividend history shows that it has hiked dividends annually for the past decade.

Share Repurchase

Aon had $1.7 billion of authorization remaining under its share repurchase program as of Dec 31, 2021. The new authorization brings the total available fund for buybacks to $9.2 billion. The company is expected to exhaust the previous share repurchase program before tapping into the new authorization. It bought back shares worth $3.5 billion in 2021.

Share buybacks and dividend hikes are a prudent way of maximizing shareholders’ wealth and generating more value. AON’s latest stock repurchase program indicates its commitment toward delivering a long-term shareholder value and reflects the company’s confidence in its financial position and ability to generate sufficient cash flows.

Financial Position

Nevertheless, speaking of its financial position, AON exited the fourth quarter with cash and cash equivalents of $544 million, which decreased 38.5% from the 2020-end level. Long-term debt was $8.2 billion, which increased 13% from the 2020-end level. Also, free cash flow decreased 23% year over year to $2 billion for 2021. Its free cash flows were hurt by termination fee payments.

Better Days Ahead?

The company is expected to deliver a much better performance in 2022, which will support its shareholder value boosting efforts. Investors interested in this stock can take a look at its growth opportunities. Acquisitions and partnerships form one of the main growth strategies of Aon, and the company has sealed many acquisitions over the past few years. Its buyouts are mainly aimed at the expansion of the health and benefits business, flood insurance solutions, and risk and insurance solutions operations.

Strategic collaborations also boost Aon’s capacity and make it one of the largest insurance brokers. Its 2022 revenues are expected to rise in mid-single digits or more from the 2021 level of $12.2 billion. Adjusted operating margin is likely to rise this year on the back of cost-controlling efforts and double-digit free cash flow growth in the long term.

Price Performance

AON shares have jumped 24.1% in the past year compared with a 12.9% rise of the industry.

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Zacks Rank & Key Picks

AON currently has a Zacks Rank #3 (Hold). Some better-ranked players in the Finance space include Ryan Specialty Group Holdings, Inc. (RYAN - Free Report) , Aegon N.V. (AEG - Free Report) , and ING Groep N.V. (ING - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Based in Chicago, IL, Ryan Specialty provides numerous specialty products and solutions for insurance brokers, agents, and others. It acts as a wholesale broker and managing underwriter to provide risk management services. The Zacks Consensus Estimate indicates that Ryan Specialty’s bottom line for 2022 is expected to jump 13.6% year over year to $1.22 per share.

Headquartered in The Hague, the Netherlands, Aegon provides multiple financial services and insurance products in American, Asian, and European markets. The Zacks Consensus Estimate for Aegon’s 2022 earnings per share indicates a rise of 14.8% year over year. AEG has witnessed one upward estimate revision in the past 30 days compared with none in the opposite direction.

ING Groep— headquartered in Amsterdam, the Netherlands — provides multiple banking products and services around the world. The consensus estimate for full-year 2022 bottom line of ING suggests a 6.2% year-over-year rise to $1.54 per share. In the past 30 days, it has witnessed one upward estimate revision and no downward movement.

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