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Dividend Opportunities Among Insurance Companies
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At this point, we all know that investing in financial stocks has been hazardous to a portfolio's health over the past 12-18 months. Investment banks, money center banks, regional banks and real estate investment trusts have all seen their fair share of carnage since the market decided to take financial issues to the woodshed.
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Insurance stocks certainly have not escaped unscathed. Life and casualty insurers such as Hartford Financial (NYSE:HIG), Lincoln National (NYSE:LNC) and others have taken the ax to their dividends, making it far less lucrative to invest in the insurance sector. Phoenix Cos. (NYSE:PNX) is another ugly name among property and casualty insurers. The stock has been slammed in the trailing twelve months, tumbling 80%, and has endured a spate of ratings downgrades to its debt recently. (For an overview of the insurance industry, refer to our comprehensive Industry Handbook.)
Add in the mess that is American International Group (NYSE:AIG), the poster child for troubled insurers that is now on the hook for $100 billion to Uncle Sam, and it's easy to see why many investors may be taking a pass on the insurance sector. But where there is peril, there is opportunity and we'll take a look at a few of the higher quality names in the insurance sector.
Quack at Aflac
Aflac (NYSE:AFL) may be best known for its commercials with the duck that screams the company name at every turn, but the company should be known among investors for different reasons. Many investors were expecting the company to pare its pay out earlier this year as other insurance firms were doing the same thing, but Aflac bucked the trend and actually raised its dividend.
If nothing else, that shows that returning value to shareholders is important to Aflac and the current yield of 2.8% is decent, but nothing that screams trouble is on the horizon. Aflac shares are up 11% year-to-date, though they are still reasonably valued at less than eight times forward earnings and just 1.1 times trailing sales. The balance sheet is nothing to quack at and it appears Aflac may be one of the better names in the insurance sector at this point.
Cheering for Chubb
Chubb (NYSE:CB) is a property and casualty insurer, but not one of the erstwhile ones like Hartford Financial or Lincoln National, and that might be why Chubb is among some analysts' favorite names in the insurance group. The current dividend yield of 2.9% is fair and the annual pay out of $1.40 is decent, but that could rise as Chubb has been faithfully raising its dividend for nearly two decades.
Chubb is another insurance name trading at fair valuations, including just nine times forward earnings and less than 1.17 price/book value. Chubb's pay out ratio is just 31% and the balance sheet is solid, indicating the dividend is fairly safe.
A New Dow Member
The Travelers Cos. (NYSE: TRV) is one of the two newest members to the venerable Dow Jones Industrial Average and the irony is that Travelers replaced Citigroup (NYSE:C), from which it was previously married to and spun off from in 2001. We can safely say that Travelers is one of the better names in the insurance sector at this juncture.
Trading at just nine times forward earnings, Travelers yields 2.5% and while that isn't all that exciting, the company's history of dividend increases is, which an increase coming every year for the past five. With a low pay out ratio and over $4 billion in free cash flow, Travelers looks poised to continue its heritage as a solid dividend payer. (Learn more about free cash flow in our article Analyze Cash Flow The Easy Way.)
The Bottom Line: Be Selective with Insurance Stocks
Insurance is no different than any other sector in terms of it pays for investors to be selective and seek out the most reliable dividend payers. The names mentioned here are a good starting point, and while the recent rally has lifted the fortunes of AIG, Hartford and Lincoln, we view that trio as far more risky than the names highlighted here.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: Digging Out Of Debt In 8 Steps
Insurance stocks certainly have not escaped unscathed. Life and casualty insurers such as Hartford Financial (NYSE:HIG), Lincoln National (NYSE:LNC) and others have taken the ax to their dividends, making it far less lucrative to invest in the insurance sector. Phoenix Cos. (NYSE:PNX) is another ugly name among property and casualty insurers. The stock has been slammed in the trailing twelve months, tumbling 80%, and has endured a spate of ratings downgrades to its debt recently. (For an overview of the insurance industry, refer to our comprehensive Industry Handbook.)
Add in the mess that is American International Group (NYSE:AIG), the poster child for troubled insurers that is now on the hook for $100 billion to Uncle Sam, and it's easy to see why many investors may be taking a pass on the insurance sector. But where there is peril, there is opportunity and we'll take a look at a few of the higher quality names in the insurance sector.
Quack at Aflac
Aflac (NYSE:AFL) may be best known for its commercials with the duck that screams the company name at every turn, but the company should be known among investors for different reasons. Many investors were expecting the company to pare its pay out earlier this year as other insurance firms were doing the same thing, but Aflac bucked the trend and actually raised its dividend.
If nothing else, that shows that returning value to shareholders is important to Aflac and the current yield of 2.8% is decent, but nothing that screams trouble is on the horizon. Aflac shares are up 11% year-to-date, though they are still reasonably valued at less than eight times forward earnings and just 1.1 times trailing sales. The balance sheet is nothing to quack at and it appears Aflac may be one of the better names in the insurance sector at this point.
Chubb (NYSE:CB) is a property and casualty insurer, but not one of the erstwhile ones like Hartford Financial or Lincoln National, and that might be why Chubb is among some analysts' favorite names in the insurance group. The current dividend yield of 2.9% is fair and the annual pay out of $1.40 is decent, but that could rise as Chubb has been faithfully raising its dividend for nearly two decades.
Chubb is another insurance name trading at fair valuations, including just nine times forward earnings and less than 1.17 price/book value. Chubb's pay out ratio is just 31% and the balance sheet is solid, indicating the dividend is fairly safe.
A New Dow Member
The Travelers Cos. (NYSE: TRV) is one of the two newest members to the venerable Dow Jones Industrial Average and the irony is that Travelers replaced Citigroup (NYSE:C), from which it was previously married to and spun off from in 2001. We can safely say that Travelers is one of the better names in the insurance sector at this juncture.
Trading at just nine times forward earnings, Travelers yields 2.5% and while that isn't all that exciting, the company's history of dividend increases is, which an increase coming every year for the past five. With a low pay out ratio and over $4 billion in free cash flow, Travelers looks poised to continue its heritage as a solid dividend payer. (Learn more about free cash flow in our article Analyze Cash Flow The Easy Way.)
The Bottom Line: Be Selective with Insurance Stocks
Insurance is no different than any other sector in terms of it pays for investors to be selective and seek out the most reliable dividend payers. The names mentioned here are a good starting point, and while the recent rally has lifted the fortunes of AIG, Hartford and Lincoln, we view that trio as far more risky than the names highlighted here.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Todd Shriber
Todd Shriber was a financial journalist for five years with Bloomberg News and MergerMarket.com, covering a variety of sectors, including energy, financials and technology. He is also a Series 7 license holder and has actively traded equities, forex and options.
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