Seeking Alpha
Dividend growth investing
Profile| Send Message| ()  

Cincinnati Financial Corporation (CINF), through its subsidiaries, offers commercial, personal, and life insurance products to businesses and individuals in the United States.

click to enlarge

CINF is on both the Dividend Aristocrats and High-Yield dividend aristocrats lists.

Over the past 10 years this dividend growth stock has delivered an average total return of 3.07% annually to its loyal shareholders. The company has also managed to deliver an impressive 18% average annual increase in its EPS.

The trend in ROE has followed the trend in earnings per share over our study period. This indicator was in a free fall from its 6.35% level in 1997 to its 2000 low 1.97%. After that it has been steadily rising to levels above 12%.

The company recently announced that it would raise its quarterly dividend by 3.5 cents to 39 cents per quarter, which represents a 9.9% increase from 2007. The company has increased its dividend for 48 consecutive years. CINF has averaged a 5 and 10 year dividend growth rates of 11.96% and 11.14% respectively. It's currently yielding a respectable 4.10% annually. The stock price has been trading in a narrow range over the past 10 years, which has offered a good entry points for dividend reinvestment at bargain prices.

An 11% growth in dividends translates into the dividend payment doubling every 7 years. If we look at historical data, going as far back as 1990, CINF has indeed managed to double its dividend payments every seven years.

If we invested $100,000 in CINF on December 31, 1997 we would have bought 2,295 shares (adjusted for a 3:1 split). Your first quarterly check would have yielded $319.19 in dividend income in early 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $1,016 by December 2007 and you would be expecting to collect $1,126.32 dividend income in April 2008. For a period of 10 years, your quarterly dividend income has increased by 155%. If you reinvested it though, your quarterly dividend income would have increased by 218%.

I also like the fact that the company's dividend payout has not exceeded 50% over more than twice over the past 10 years in addition to the low P/E ratio which is less than 10 and the above average dividend yield of 4.10%. I think that this financial stock has been unfairly punished with the rest of the financial group simply because of its asset class.

Overall I think that CINF is a long-term buy for the dedicated dividend investor. I would be a buyer of the stock as long as P/E ratio is below 20, it is yielding above 2% and the dividend payout is below 50%. It's attractively valued for me with an above average yield of 3.90% and P/E of 8.

Disclosure: I own CINF

Source: Cincinnati Financial Corporation: For the Dedicated Dividend Investor