Dividend Stock Progressive Announces Positive Q3 Results

| About: Progressive Corporation (PGR)

Summary

Progressive beats analyst estimates on revenue.

Progressive reported a solid ROE of 13%.

Progressive pays an impressive dividend & yields 2.85%.

Progressive Corporation (NYSE:PGR) is up over 2% today to $32.30 after it released its Q3 earnings results on Thursday morning. Progressive is one of my favored Top 100 Dividend Stocks. The company reported earnings of $0.34 per share for the quarter. This slightly missed analysts estimates. However, on the revenue side of the equation, the company generated $6.05 billion during the quarter, in contrast to analysts who expected $6.04 billion. Progressive also maintained a high return on equity of over 13%. These results from Progressive caught analysts off guard. There are currently eleven "hold" ratings and six "sell" ratings while few analysts recommend buying the stock. We consider this a positive when analysts are generally negative on a particular stock, as any good news will result in the stock price advancing. The latest downgrade was by Zacks Investment Research on September 20th. Zacks put a sell rating on the stock with a price target of $32.69. Citigroup and Deutsche Bank have also cut their ratings on the stock in 2016. You can witness the negative sentiment around Progressive based upon its EPS trend data. There has been a substantial degradation of earnings projections by analysts for Progressive by analysts in the past 90 days;

EPS Trend Current Qtr. Next Qtr. Current Year Next Year
Current Estimate 0.34 0.5 1.6 2.02
7 Days Ago 0.36 0.5 1.6 2.03
30 Days Ago 0.41 0.52 1.66 2.07
60 Days Ago 0.44 0.52 1.69 2.1
90 Days Ago 0.47 0.53 1.78 2.12
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Source: Yahoo Finance

Progressive is one of the stronger players within the insurance industry. Its bread and butter is auto insurance. It ranks 4th among all major insurers at 8.8% (see table below). Although Progressive has entered its maturity phase with revenue and earnings growth being much more modest than in the past, its revenue stability and dividend increases have continued. Its underwriting margins have dropped, but remain constant at 4%. It has a solid direct sales channel and an excellent reputation. The company maintains a solid balance sheet with an excellent credit rating. Moody's Investors Service assigned an A2 investment grade rating to $500 million of senior unsecured notes due 15 January 2027 that were issued in August 2016. Progressive's maturity as a firm also provides advantages for investors focused on compelling dividend paying companies with low risk. It currently pays a solid 2.85% dividend yield.

Top Ten Auto Insurance Companies;

1 State Farm Mutual Automobile Insurance $36,545,896 18.30%
2 Berkshire Hathaway Inc. 22,808,382 11.4
3 Allstate Corp. 20,036,973 10
4 Progressive Corp. 17,518,721 8.8
5 USAA Insurance Group 10,562,100 5.3
6 Farmers Insurance Group of Companies (3) 9,985,969 5
7 Liberty Mutual 9,942,667 5
8 Nationwide Mutual Group 7,468,708 3.7
9 American Family Mutual 3,694,271 1.9
10 Travelers Companies Inc. 3,377,404 1.7
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Source: Insurance Information Institute

We think with the company's latest earnings release this morning and strong stock reaction, Progressive may begin the process of reversing analysts opinions. The stock has a market capitalization of $18 billion, a forward P/E ratio of 15.5 and a low beta of 0.81. Progressive Corporation announced a regular quarterly dividend of $0.8882, a 29 percent increase from the prior rate of $0.6862 per share earlier this year. Progressive has a unique annual dividend policy program determined by a calculation formula;

Dividend Amount Per Share

=

Annual
After-Tax
Underwriting
Income
X

33
1/3%
Target

X Gainshare
Factor
Common Shares Outstanding on 12/31/15
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This has resulted in the following historical dividends;

Date Quarterly Dividend
2/3/2016 0.8882
2/2/2015 0.686
1/27/2014 0.493
1/23/2013 0.284
1/24/2012 0.407
1/25/2011 0.399
12/16/2010 1.00 (special)
1/25/2010 0.161
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The company has paid out $4.38 in total dividends in the last eight years. Although variable based upon the formula, Progressive has doubled its dividend from 2012. On a valuation basis, it trades at a market average forward P/E ratio and below its average price/book (P/BV) range. Progressive is also trading well above its average historical dividend yield of 1.64%. I favor the firm based upon the high dividend yield, low historical price/book value, strong credit rating, and strong dividend growth.

BV 2016 P/BV Ratio 10 yr P/BV Low 10 yr P/BV High Yield % 5 yr lowest Yield % 5 yr highest Yield %
14.35 2.1 1.85 3.85 2.85% 1.27% 3.03%
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Source: Morningstar

Disclosure: I am/we are long PGR.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.