Chubb: Solid Choice for Dividend Investors

Jul.16.10 | About: The Chubb (CB)

Insurance companies are difficult to understand, especially for value investors who want consistent growth. Growth from one year to the next is impossible to predict with accuracy. They have investment income which varies substantially and catastrophe expenses fluctuate wildly from one year to the next. Even written premiums do not grow consistently. Therefore it is necessary to value these companies based on long term records.

Chubb (NYSE:CB), a Dividend Aristocrat, was founded in 1882 in New York for marine underwriting business. Now it sells insurance around the world with 24% of premiums coming from outside the US. Last week CB was granted approval to open its 2nd China office in Nanjing (the first was opened 10 years ago). Chubb is one of the largest property and casualty insurance in the world with a conservative investment philosophy. Its debt credit ratings are A+ and its insurer financial strength is AA. Growth for book value and markets value per share is presented below:


Book Value_____$20___$47
Market Value____$26___$49

The total return for CB shareholders below is impressive. Assuming $10,000 was invested on December 31, 2002 (along with reinvested dividends), a CB investment easily beat the competition (not to mention many prominent companies) over a difficult period:

...........December 31, 2009

S&P 500________$14,600
Prop & Casualty__$12,400

CB expects lower earnings in 2010, but considers them attractive by historical and competitive standards in what is viewed as the 6th year of a soft market. Analysts expect flat revenues of $11 billion this year and next producing the estimated EPS figures below:


The $1.48 dividend yields almost 3%. CB, like most of the Dividend Aristocrats, returns money to shareholders with growing dividends and by purchasing treasury stock. In June, CB increased the number of treasury shares that it can purchase by 14 million. CB has purchased 119 million shares in the last 4 years plus an additional 7 million in Q1 2010. 10 years ago the stock was in the lows 30s, today it's $52.86 (up $3 YTD while the Dow is flat). The stock doubled from the late 1990s and is up substantially from low single digits 30 years ago. Next year's higher dividend is only a few months away and will be its 29th consecutive year of annual dividend increases. Long term investors who appreciate growing dividends should consider Chubb.

Disclosure: No position