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When insiders buy stock in their own company, it is a strong signal to investors that the stock's value is expected to appreciate. One such stock acquisition took place on April 27, 2012, when a director at Selective Insurance Group (SIGI), John Burville, purchased 11,500 shares in an open market transaction for $17.43 a share. This was the second time within the past year that Mr. Burville acquired shares in his company, which provides property, casualty, and diversified insurance products. John Burville purchased 20,000 shares on July 31, 2011, for $16.31 per share. Given the recently poor performance of this insurance provider, it is likely that Mr. Burville is anticipating a turnaround in the company's performance in the days ahead.

Selective Insurance Group has seen its revenue grow modestly and its net income and earnings plunge in the first quarter of 2012, compared with the same quarter of the previous year. Revenue increased by close to 4%, while net income slid 11.7% year-over-year. Earnings dived 10.8% on the year to $0.33 a share in the first quarter of 2012. A dismal earnings performance over the past year has swelled the company's price-to-earnings ratio to a staggering 55x trailing-twelve-month earnings, due to an increase in the share price of nearly 40% since October 2011. Notwithstanding poor earnings performance in the past quarters and currently high valuations, conditions at this insurance provider are expected to improve soon.

According to Yahoo Finance, earnings per share excluding abnormal items are expected to surge more than 3,300% in the second quarter, compared with the same quarter a year earlier. For the year 2012 as a whole, earnings are projected to soar 317%. Analysts expect earnings to jump another 14% in 2013. This will bring the forward price-to-earnings ratio to a more attractive 11x. In addition, improvement in the company's bottom line will also help sustain the future dividend payments, which the company has been making since 1929.

Selective Insurance Group is currently paying annually $0.52 a share in dividends. While the payout has been frozen at this rate since 2008, it has increased by 73% since 2002. At current share prices, the annual dividend payout translates into a 2.9% dividend yield. This yield is much lower than the industry's average yield of 5.0%; however, it is higher than dividend yields on the insurance provider's closest peers, W.R. Berkley Corporation (WRB), CNA Financial Corporation (CNA), and Old Republic International Corp. (ORI), respectively boasting yields of 0.8%, 2.0%, and 7.2%. It should also be noted that Selective Insurance Group's current dividend payout ratio is extremely high at 180% of trailing-twelve-month earnings. The forecast earnings rebound will likely help reduce this elevated ratio to more sustainable levels.

The recent insider purchase of Selective Insurance Group's stock is a vote of confidence in the company's ability to stage a quick comeback in the coming quarters. Likewise, it may be an insider's hint to investors that now may be a good time to take a position in the company that is about to resume its growth.

Source: Selective Insurance Group: Insiders Are Buying This Dividend Stock