Resolution (LSE:RSL - soon to complete rebranding to 'Friends Life Group') is a British insurance 'takeover specialist', which buys life insurers to merge them into (in theory) a more profitable whole. Resolution bought Friends Provident in 2009 and took its place in the FTSE 100. In 2010, it snapped up the UK savings and life assurance arm of France's AXA and Bupa's life, critical illness and income protection business, bringing them together under as the Friends Life Group.
Resolution's shares performed quite strongly until March 2012. No doubt it pleased institutional shareholders by returning £500 million in share buybacks, after claiming there were no further acquisitions worth pursuing: it pulled out of the bidding for Phoenix (which I also currently hold) - indicating that it was keeping a sharp eye on value for money.
I first bought Resolution back in November 2011 and then bought some more, finally selling it with a 46% capital gain two years later.
Today, Resolution offers a massive 7.5% yield with a dividend cover of 1.5. Moreover, its 2013 results are generally positive and contains an important commitment to improve the dividend (which has been frozen for the time being) when free cash flow allows.
The high yield is, as always, a sign of the market's concern. In this case probably mainly related to the on-going review of the UK's Financial Conduct Authority into life policies. It might be the next 'PPI' scandal - or then again it might not: I'm betting 'not'.
So there you have the key elements of a DIY Income Investor purchase:
- high yield
- Mr Market's dislike for the security due to uncertainty about a key factor
- A 'gamble' that Mr Market is overly cautious
It can backfire - so be warned!
[Purchase price: £2.77692 - I wish the rest of life was that precise!]
I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.