It's been a good week for investors in Esur (LSE: ESUR) as their shares have jumped over 12% in the past five days after the insurer posted stellar full-year 2016 results. A great year of trading for the online-only firm saw its operating profits rise 18% year-on-year and allowed it to raise full-year dividends by 17%.
Including the latest increase, shareholders of Esur are now receiving a 5.8% dividend yield annually and I believe there's room for already-impressive shareholder returns to improve in the coming years. For one, growing earnings still covered this past year's dividend 1.4 times over.
Another factor in my thinking is that the firm is in full growth mode, targeting an increase in policies in force from 2.1m in 2016 to 3m by 2020. If the group can do this while maintaining tight control over policy standards there's every reason to believe profits can grow by an even larger margin as benefits of scale kick in.
One thing for investors to watch closely is whether or not the company's expansion into home insurance proves as profitable as its core motor insurance business has been. The home insurance market is still relatively small for Esur, representing just 14% of total policies written when measured by value, but it represents a massive growth market for the company to target.
With growth opportunities ahead, a sane dividend policy that sees 50% of post-tax profits returned to shareholders, and the ever-present potential for further special dividends if its capital position remains strong, I reckon Esur will continue to bring joy to income investors in the years to come.
A safer option?
A more under-the-radar option for dividend-hungry investors is replacement window and door manufacturer Safestyle (LSE: SFE). The AIM-listed firm may not be well known but its well-covered and growing 3.5% yielding dividend certainly piques my interest.
That's largely because the company isn't just a low-growth income option but is also growing sales and profits at a rapid clip by taking market share in the very fragmented market in which it operates. Revenue grew 9.8% year-on-year in 2016 thanks to price increases and 4.7% year-on-year increase in the number of window and door installations carried out.
There's good reason to expect this solid performance to continue as at the end of H1, the company's market share was only 10%, but has been steadily growing. This market share growth is being driven by its expansion out of its core northern and midlands markets into the wealthier south of the country.
Also attractive is the highly cash generative nature of the business that generated £8m in net cash from operations in H1 from £83.5m in sales. This has allowed the company to keep a cash-heavy balance sheet with £13.5m in the bank at year-end even as it expands its manufacturing facility and moves into new markets.
With shares trading at a cheap 15 times forward earnings while offering high growth potential and rising dividends, I believe Safestyle is a very attractive growth and income option.
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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.