According to a recent Bloomberg article, annuity sales in the U.S. could hit $700 billion over the next two years. In 2023, they hit a record of $385 billion, 23% higher than in 2022. That’s excellent news for annuity stocks. Bloomberg reported comments from Torsten Slok, chief economist at Apollo Global Management:
“Key drivers for credit demand at the moment are retail and pensions seeking higher all-in yields, and annuity sales driven by more baby boomers retiring and by a higher level of interest rates giving policyholders higher monthly payments,”
Is it too late to ride the annuities’ gravy train? Not at all.
Over the past 16 years, annual annuities sales in the U.S. have stayed above $200 billion. With 2024 and 2025 expected to see $300+ billion in annual sales, by the time 2026 rolls around, there will have been four consecutive years of over $300 billion.
That seems like a trend that’s not going away anytime soon. With that in mind, here are three annuity stocks to buy now.
Apollo Global Management (APO)
Apollo Global Management (NYSE:APO), the New York-based alternative asset manager, acquired 65% of Athene (a retirement services company) that it didn’t already own for $7.2 billion in stock. Upon completion of the acquisition in January 2022, Apollo shareholders owned 76% of the combined company, with Athene shareholders owning 24%.
Athene offers fixed index annuities (FIAs), registered index-linked annuities (RLIAs), fixed annuities, and immediate annuities. As of Sept. 30, 2023, it had $270 billion in total assets, with $208 billion in net invested assets.
People at or near retirement buy annuities. They provide a guaranteed income for life, and while considered a retirement product, they’re insurance contracts. Many people buy annuities because they’re afraid of outliving their retirement savings.
In 2023, Athene generated $29.14 billion in revenue, accounting for 89% of Apollo’s revenue overall. Together with Apollo’s revenues from its alternative asset management business, the company generated $5.13 billion in net income.
In Q4 2021, Apollo had $498 billion in total assets under management (AUM). By Q4 2023, AUM had grown to $651 billion, 31% higher over two years. Of those assets, $493 billion is fee-generating. A significant chunk of the inflows came from its Retirement Services business (Athene).
Apollo’s shares are up 58% over the past year.
Allianz (ALIZY)
Allianz (OTCMKTS:ALIZY) is Germany’s leading global financial services provider. Founded in 189o, the company has more than 122 million customers in 70 countries, served by 159,000 employees. Of the company’s 159,000 employees, nearly 16,357 are in the U.S. It has more than €1.64 billion ($1.77 billion) in third-party AUM.
Allianz offers FIAs and RLIAs as part of the company’s Life and Health Insurance segment. In 2022, this segment generated 49% of its revenue and 36% of its operating profit. Its asset management business contributed 22% of operating profits from just 5% of its revenue.
In the first nine months of 2023, Allianz’s total revenue was €122.1 billion ($131.97 billion), up 4.7% from a year earlier, with €11 billion ($11.89) operating profit, driven by the Life and Health Insurance segment. For 2023, it plans to generate an operating profit of €14.2 billion ($15.35 billion).
The present value of new business premiums as of Sept. 30, 2023, was €50.6 billion ($54.69 billion), down slightly from a year earlier due to discounting in several European countries being offset by higher U.S. volumes.
Allianz’s return on equity in the first nine months of 2023 was 15.8%, 310 basis points higher than a year ago.
ALIZY stock trades within pennies of its 52-week high of $27.19.
Lincoln National (LNC)
Lincoln National (NYSE:LNC) is the worst performer of the three annuity stocks. Its shares are down nearly 57% over the past five years.
The Pennsylvania-based financial services company reported Q4 2023 results on Feb. 8. Its operating income for the year was $890 million, up significantly from an operating loss of $1.18 billion in 2022.
“We delivered improved operating performance led by our Group Protection business, record sales in Annuities, and more stable Life earnings. In Retirement Plan Services, we achieved our ninth consecutive year of positive flows,” stated CEO Ellen Cooper in its Q4 2023 press release.
“We are making meaningful progress in resetting our businesses for profitable organic growth as we reposition our product sales to a more capital-efficient and higher risk-adjusted return mix supported by our leading distribution.”
As the CEO said, it generated record annuities sales in the fourth quarter, going over $2 billion for the first time. Revenue was driven by its strength in fixed annuities.
Its annuities revenue was $4.4 billion for the fourth quarter, 36% higher than in Q4 2022. Its annuities revenue for 2023 was $12.8 billion, 8% higher YOY.
The past year was one of transformation. The company’s three focus areas were strengthening its balance sheet, improving free cash flow, and driving profitable growth. Its goal for its operating margin in 2024 and beyond is a sustainable 7%. It hasn’t been that high since Q3 2022 when it was 9.2%.
Yielding 6.7%, get paid to wait for its transformation to gain greater traction with investors in 2024 and beyond.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
