I’m targeting an annual dividend income of £25,451 from my £20,000 holding in this 8.9%-yielding FTSE gem!

Admiral (LSE: ADM) has quietly become one of the FTSE’s most reliable income machines.

Its capital‑light model, disciplined underwriting, and long record of special payouts mean the headline yield rarely tells the full story.

For me, the insurance giant is a structurally cash-generative powerhouse that turns premiums into distributable profits with remarkable efficiency.

So, how much dividend income can it generate for me in the coming years?

Steady 7%+ dividend forecasts

Admiral’s ordinary payout alone is attractive, but the real magic comes from the special dividends that appear whenever its capital position exceeds regulatory needs.

Because it passes much of its underwriting risk to partners, Admiral does not need huge reserves on its balance sheet. That frees up more profit for shareholders, which is why special dividends have been paid with striking regularity.

In 2024, the insurance giant returned a total dividend of 192p, equivalent to a 7.3% yield at the current £26.47 share price.

Looking ahead, analysts forecast the dividend will rise to 8.9% this year, before dipping slightly to 7.9% in 2026. In 2027, the projections are that it will increase again to 8.3%.

I see a 7%+ dividend yield as compensation for taking the extra risk in shares over no risk at all. And currently the risk-free rate (10-year UK gilt yield) is 4.5%.

By comparison, the FTSE 100’s average dividend yield is just 3.1%.

How much can I make long term?

Dividend yields vary over time, as share prices and annual payouts change. But using this year’s 8.9% yield as an average, my £20,000 holding could generate £28,543 in dividends after 10 years.

This assumes I reinvest these back into stock to harness the power of ‘dividend compounding’.

On that basis, my dividends could snowball to £265,968 after 30 years. This marks the end of a standard investment cycle in my view. It begins with initial investments aged around 20 and ends with early retirement options aged around 50.

At that point, my total holding (including the £20,000 original investment) would be worth £285,968.

And that would be paying me a yearly dividend income of £25,451! Of course, it is not guaranteed that the company and its dividend will stay the same for three decades.

Can the business sustain the payouts?

A risk ahead is intense competition in the UK motor insurance market, which may pressure margins. However, its capital‑light business model and strong brand help keep earnings and cash generation high.

Its H1 2025 numbers saw profit before tax soaring 69% to a record £521m. This was despite average UK car insurance prices falling over the previous 18 months. Given this, earnings per share (EPS) soared 72% to 132.5p, while return on equity rose 1.2% to 57%.

All this followed a record 2024 — profit before tax surged 90% to £839m, while EPS almost doubled to 216.6p. Turnover climbed 28% to £6.15bn, driven by a 37% rise in insurance revenue, while the customer base expanded 14% to 11.1m.

My investment view

I believe Admiral is among the FTSE 100’s most dependable long‑term income stocks.

Its business model, disciplined underwriting and a long record of returning surplus capital should support future generous payouts.

With the shares on course for a 7%+ yield over the next three years, I will add to my holding very soon.

The post I’m targeting an annual dividend income of £25,451 from my £20,000 holding in this 8.9%-yielding FTSE gem! appeared first on The Motley Fool UK.

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Simon Watkins has positions in Admiral Group Plc. The Motley Fool UK has recommended Admiral Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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