Build Diversity: Part 2 Financials-Insurance

06 Mar 2014 00:07
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All stock information will be culled from David Fish’s “Dividend Champions List” at which provides a list of all stocks that have continually grown their annual dividend payouts for 5 years or more in a row

Welcome to Part 2 of our “Build Diversity” series. Today we will be looking at the Financial sector and more precisely Insurance companies.

To start with a list we will use basic search criteria of:

  • min div yield near 2.5% or greater
  • payout ratio less than 65%
  • debt to equity ratio less than 1
Company Symbol Yrs of Div Growth Div Yield Payout Ratio TTM P/E Debt/Equity
ACE Limited ACE 22 2.69% 24.59% 9.15 0.21
AFLAC Inc. AFL 31 2.36% 22.63% 9.60 0.34
Axis Capital Holdings Ltd. AXS 12 2.40% 25.53% 10.64 0.19
Cincinnati Financial CINF 54 3.63% 49.44% 13.61 0.16
Hanover Insurance Group THG 9 2.67% 53.24% 19.97 0.37
Maiden Holdings Ltd. MHLD 6 4.01% 57.89% 14.45 0.41
PartnerRe Limited PRE 21 2.73% 35.40% 12.97 0.13
Travelers Companies TRV 9 2.46% 20.53% 8.34 0.26

The search yielded 8 great stocks with a variety in yield and growth. For companies that have increased dividends for more than 20 consecutive years we have CINF, AFL, ACE, & PRE. All 8 stocks scored well in respect to payout ratio with the highest being MHLD hinting that there is room to grow dividends further. From a stock price valuation 7 of the stocks sport a P/E ratio less than 15 and 4 are below the industry average of 11.89 (TRV, AFL, ACE, AXS). Looking at debt, all 8 stocks carry low debt with a debt/equity ratio well below .5.

Company Symbol 1 Yr DGR 3 Yr DGR 5 Yr DGR 10 Yr DGR
ACE Limited ACE 4.17% 16.04% 12.91% 10.45%
AFLAC Inc. AFL 5.97% 7.60% 8.14% 16.82%
Axis Capital Holdings Ltd. AXS 4.17% 5.98% 6.21% 30.46%
Cincinnati Financial CINF 1.70% 1.19% 1.50% 6.41%
Hanover Insurance Group THG 10.57% 10.79% 24.76% na
Maiden Holdings Ltd. MHLD 12.50% 11.46% 29.20% na
PartnerRe Limited PRE 3.23% 7.69% 6.83% 7.87%
Travelers Companies TRV 9.50% 11.60% 10.49% 5.39%

Looking at average dividend growth significant differences begin to appear. CINF may have the longest growth history and one of the larger dividend yields it comes at price as lags most in growth over the last 10 years. THG & MHLD have the highest recent growth rates but their history may pose risk with only 9 and 6 years of consecutive increases.

Working with financials it is necessary to look at the 2008/2009 crash (caused by financials) and whether or not their banking & lending siblings carried over to insurance companies.

Company Symbol 2009 2008 2007
ACE Limited ACE 5.50% 4.81% 8.33%
AFLAC Inc. AFL 16.67% 20.00% 45.45%
Axis Capital Holdings Ltd. AXS 8.11% 12.12% 10.00%
Cincinnati Financial CINF 2.62% 8.93% 6.87%
Hanover Insurance Group THG 66.67% 12.50% 33.33%
Maiden Holdings Ltd. MHLD 140.00% 0.00% 0.00%
PartnerRe Limited PRE 2.17% 6.98% 7.50%
Travelers Companies TRV 3.36% 5.31% 11.88%

Dividend increases during the crash were surprisingly strong. The only exception to the group was MHLD but that is only because they did not start increasing dividends until 2009. While insurance and banking live in the same sector they do not react in the same manner according to this data and may actually be a nice defensive position against banking & financial lending companies.

Our quick search has yielded some nice examples to add to your portfolio. Like any investment you should research further before purchasing any equity as this report is nothing more than a result of some surface level values and ratios.

ACE Limited (ACE): ACE Limited, through its subsidiaries, provides a range of insurance and reinsurance products to insureds worldwide.

AFLAC Inc. (AFL): Aflac Incorporated, through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance products.

Axis Capital Holdings Ltd. (AXS): AXIS Capital Holdings Limited provides specialty lines insurance and treaty reinsurance products worldwide.

Cincinnati Financial (CINF): Cincinnati Financial Corporation engages in the property casualty insurance business in the United States. It operates in five segments: Commercial Lines Property Casualty Insurance; Personal Lines Property Casualty Insurance; Excess and Surplus Lines Property Casualty Insurance; Life Insurance; and Investments.

Hanover Insurance Group (THG): The Hanover Insurance Group, Inc., through its subsidiaries, underwrites commercial and personal property, and casualty insurance products and services in the United States. It operates in four segments: Commercial Lines, Personal Lines, Chaucer, and Other.

Maiden Holdings Ltd. (MHLD): Maiden Holdings, Ltd., through its subsidiaries, provides reinsurance solutions to regional and specialty insurers primarily in the United States and Europe. It operates in three segments: Diversified Reinsurance, AmTrust Quota Share Reinsurance, and ACAC Quota Share.

PartnerRe Limited (PRE): PartnerRe Ltd., through its subsidiaries, provides reinsurance services worldwide.

Travelers Companies (TRV): The Travelers Companies, Inc., through its subsidiaries, provides various commercial and personal property, and casualty insurance products and services to businesses, government units, associations, and individuals in the United States.

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