This dull-and-reliable investment offers stability amid stomach-churning volatility

Telegraph

19-05-2025

Questor is The Telegraph's stock-picking column, helping you decode the markets and offering insights on where to invest.
We all crave fun and excitement. In the stock market, that means dull-and-reliable investments often get overlooked. But during periods of stomach-churning volatility, as we have experienced during 2025 so far, the virtues of the dull stuff suddenly become much clearer.
Dull-and-reliable investments tend to make themselves known through two key attributes. One is relatively stable share prices. The other is attractive cash returns; what could be duller after all than a business with nothing more exciting to do with its cash than to dutifully hand it back to its owners.
US employee benefits specialist Unum displays both these characteristics. This may help explain why top investors have been increasing their bets on its shares.
Nine of the world's best fund managers, all among the top-performing 3pc of over 10,000 equity pros monitored by financial publisher Citywire, hold Unum's shares. And increased smart money interest has this month seen the company propelled to be among the 74 constituents that make up Citywire's Global Elite Companies Index, which represents the very best ideas from around 6,000 stocks held across the portfolios of the world's best money managers.
Unum is an insurance company that specialises in selling a range of work-related financial protection and wellbeing services through employers and also directly to individuals. Its portfolio includes disability, life, accident, critical illness, cancer, dental and vision cover.
Offering such a broad range of policies makes it attractive as a one-stop-shop to clients, especially as employers increasingly look to compete for staff based on the overall benefits they offer as opposed to just salary.
Unum is more profitable than most of its peers. Its leadership in disability insurance is a particular advantage that underpins its competitive position. The complexities of disability insurance limits competition and differentiates Unum to customers. This is reflected a return on equity of over 20pc reported by Unum in 2024. Meanwhile, book value per share has grown at an annualised rate of 9pc over the last ten years.
The company generates large amounts of cash from its business, too, which it returns through share buybacks as well as dividends. Buybacks have more than halved Unum's share count since 2007.
Buybacks are only a real benefit to shareholders if the shares bought offer the prospect of a good return. Fortunately, in the case of Unum this looks like the case based on its shares' forecast free cash flow yield of over 10pc and a price equivalent to less than nine times forecast earnings for the year ahead.
Unum has said it will aim to buy back between $500m (£376m) to $1bn of shares this year and is forecast to pay out over $300m in dividends. Taking buybacks at the proposed mid-point, that's equivalent to a hearty total shareholder yield (buybacks and dividends as proportion of market capitalisation) of 7.3pc.
British buyers of the shares, which are available through all the UK's main brokerage platforms, need to fill out the correct paperwork to minimise withholding tax on dividends and should also check for any additional overseas dealing charges.
The company looks particularly well set up for cash returns given there is $2.2bn of liquidity at the holding company level, which is expected to rise to $2.5bn by the year end. That's well above a target level of about $500m.
The strong financial position has been helped by a reinsurance deal covering a $3.4bn chunk of Unum's closed book of long-term care insurance policies, equating to 20pc of the total.
Closed books are made up of policies that have previously been sold and are still being serviced but are no longer being marketed. The deal reduces risk as well as freeing about $100m of capital.
Business risks have also been reduced over the last several years by moving the investment portfolio into safer assets.
However, taking on risk is what the insurance game is all about, which means the possibility for upsets always exists. One such recent worry for investors has been an uptick in disability claims in Unum's first quarter. Management believes this is nothing out of the ordinary, though, and consistent with long-term trends.
More generally, sales growth and premiums are both strong and the company believes digital investments will continue to help it attract new customers while nudging up the persistency of policies that have already been taken out.
There's plenty to take comfort from. During times of uncertainty, that's a valuable thing, especially when it is accompanied by large cash returns.