A Property Insurance Company With A 5% Dividend Yield

The insurance industry has been taking a beating in recent weeks as natural disasters have been unfolding all across the world. Property insurers and reinsurers have been forecasting losses from an expected rise in claims over the next few months. This will affect the cash flow of these companies and there ability to increase dividends for the year. There is however a medium sized insurance company that has a history of increasing its dividend in both good and bad economic environments.

The company in question is Cincinnati Financial Corporation (CINF).

Cincinnati Financial Corporation is a property and casualty insurance company based in Fairfield, Ohio. The insurer has an impressive streak of 40 consecutive years of dividend increases. Over the past five years, the company has grown its dividend 5%. The company is a mid cap insurance company that has done a good job of generating free cash flow over the years.

Cincinnati Financial  is currently paying investors a dividend of $1.60 per share which equals a 5.1% dividend yield. The current dividend is higher than the expected earnings for 2011 and 2012. Just like any other insurance company. Cincinnati Financial is having to deal with losses from the floods and tornadoes that have decimated many parts of the United States. The company has done a good job of generating additional income by investing the premiums paid from customers.

The company has been able to raise premium prices and still generate new business over the past few quarters. Premiums were up double figures last quarter despite the fact that the company took a $3 million loss underwriting its Personal Lines division. The company has generated revenue of $3.8 billion dollars over the past year. Return on equity has averaged 9%. Future growth is pegged at 10% which seems a little high to me. I would conservatively place a 7 to 8% growth target on future earnings. This is in line with the company’s peers.

Cincinnati Financial is in good financial condition with $379 million dollars in cash and $839 million dollars in debt. The firm has generated $478 million in cash from from operations. That’s pretty impressive considering that the top business insurance companies have been battling tough situations as well.

Shares of Cincinnati Financial currently trade at $31 a share. The firm has been able to consistently grow the underlying value of its businesses with book value rising 1.6% to $31.40. The stock trades at 20 times future earnings, 2.5 times Wall Street earnings expectations, and 1.3 times sales. The stock’s price has been relatively consistent as growth has historically been moderate.

Cincinnati Financial is not particularly cheap right now but the company does offer a stable dividend that you can count on for years to come.

 

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5 Responses to “A Property Insurance Company With A 5% Dividend Yield”

  1. avatar bb says:

    Dividend can be cut anytime.

  2. avatar Siyamak says:

    I agree with the above comment, The dividends are being paid at 1.60$/Share. Next years earnings, if they dont cut it before, is estimated to be 1.53$/Share.

    I currently own shares of CINF, if things dont turn much better within the next quarter or two, i will be looking to sell my position in anticipation of a dividend cut.

    They have also estimated loss from the mississipi flood to be around 200 Million. That will affect their cashflow and therefore the dividends will be at more risk than it already is.

    Please discuss if you know something that i don’t, as id rather hold on to my shares.

  3. good post, i think insurance companies have hard times when natural disasters occur so often. The missisipi flood is just an example!

  4. Dividendss ttendo be cut like crazy once the company decides that it needs to conserve and build up it’s cash pile. So invest because you believe the company has value in it, not because of it’s dividends size.

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