Tower Limited (ASX: TWR) Reports Record FY25 Profit – With a 9.5% Dividend Yield, Is It Time to Buy?

Tower Limited (ASX: TWR) just delivered something income investors rarely see – a 158% dividend surge backed by record profits. While headlines focused on QBE’s disappointing quarter, this under-the-radar New Zealand insurer quietly rewarded shareholders with total dividends of 24.5 cents per share, up from just 9.5 cents last year. With shares yielding nearly 10% and trading at just 7x earnings, we believe Tower deserves a closer look.

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Tower Delivers Exceptional Results While Peers Struggle

The transformation story here is impressive. Tower’s claims ratio dropped to 41.3%, down from 48% last year, a significant improvement that flows directly to the bottom line. This wasn’t luck. The company has invested heavily in data-driven underwriting, and it’s paying off.
Tower’s address-level risk-based pricing now sees 91% of new house policies rated low or very low flood risk, up from 87% in FY24. We believe this strategic shift towards lower-risk customers should deliver more predictable earnings over time, exactly what income investors want to see.
CEO Paul Johnston attributed the result to “Tower’s transformation, driven by investment in our digital platform and continued focus on underwriting discipline, technology, data, and efficiency.”
The numbers back this up: customer numbers grew 4% to 318,000, with home insurance policies up 11%. This suggests the company is winning market share while simultaneously improving its risk profile, a combination that’s difficult to achieve.

Dividend Surge Signals Management Confidence

The dividend story is where Tower truly stands out for income seekers:
– Final dividend of 16.5 cents per share, fully imputed
– Total FY25 dividends of 24.5 cents – up 158% from FY24’s 9.5 cents
– Current dividend yield of approximately 9.6%
– P/E ratio of around 7.2x – well below the broader Australian market

In our view, this valuation disconnect is striking. A near-10% yield combined with a single-digit P/E suggests investors are pricing in significant risk that may not materialise. The company also returned $45 million of capital to shareholders during the year, demonstrating balance sheet strength and management’s confidence in the business.

The Investor’s Takeaway

Looking ahead, management has guided FY26 underlying NPAT of $55 million to $65 million, assuming full utilisation of an updated $45 million large events allowance. This lower figure reflects normalising weather conditions rather than deteriorating fundamentals – Johnston noted that benign weather from FY24 and FY25 is expected to normalise.
The growth runway remains intact. Tower has secured a new partnership with Westpac NZ to offer general insurance products to the bank’s retail customers from July 2026. We believe this could be a meaningful catalyst; gaining access to a major bank’s customer base should accelerate policy growth without proportionally increasing customer acquisition costs.

The key risk is New Zealand’s exposure to natural disasters. Canterbury earthquake provisions continue to drag on reported profits, and unpredictable weather events can swing earnings significantly. We’d assess this as a moderate risk, manageable given Tower’s improved underwriting and conservative reserving, but worth monitoring.

Our take: For income-focused investors seeking insurance sector exposure, Tower presents a compelling opportunity at current levels. Trading at roughly 7x earnings with a yield approaching 10%, this under-the-radar insurer offers attractive value given its operational momentum and improving risk profile. We believe the FY26 guidance looks conservative, providing potential upside if weather conditions remain benign.