This article discusses two property and casualty insurers who have shown strong dividend growth and is in my view likely to continue doing so. Dividend investors may, however, be discouraged by the relatively low current dividend yield which is quite common amongst insurers.
Take note thereof that percentages are often rounded to the nearest whole.
Everest RE Group
Everest RE Group (NYSE:RE) is a company domiciled in Bermuda involved in property and casualty insurance but technically more of a property and casualty reinsurer. The stock currently has a TTM dividend yield of 2,18% after more than doubling its dividend since 2013. The company recently raised its quarterly dividend by 9% and has grown its dividend at a CAGR of 24,7% over the past 10-years. The dividend yield is still, however, relatively low which can in part be attributed to the company's low payout ratio and in part to the share buyback program.
The company has repurchased 43% of its outstanding shares since 2006. Whilst many investors like share buybacks as a method of returning funds to shareholders, I prefer dividend payments over share buybacks and believe that the company's dividend can increase substantially if more funds are returned to shareholders through dividends as opposed to share buybacks.
The company reported an increase of approximately 2% in Gross written premiums and a 6% increase in diluted EPS for the first 9-months of 2016. The extract from the company's investor presentation below indicates the company's value creation for shareholders over the past 10-years by considering the increase in book value and dividend payments.
(Source: Everest RE Group Investor Presentation)
The stock is attractively valued at 1,075 times book value which is above its 5-year average price to book value of 0.9740. The movement above its 5-year average can partially be attributed to rising rates that is set to benefit insurers. The stock is currently trading at a TTM p/e ratio of 9,231 which is also slightly above its 5-year average p/e ratio of 8,225. Some investors may prefer to await a pullback, if they anticipate one in the near future, but I am not uncomfortable with the current valuation of the stock.
AmTrust Financial Services
AmTrust Financial Services (NASDAQ:AFSI), a New York based property and casualty insurer, currently has a TTM dividend yield of 2,39% and has grown its dividend at a CAGR of 35,6% over the past 5-years. The company also maintains a low payout ratio that leaves room for further dividend increases in the future.
The extract from the company's investor presentation below clearly demonstrates its strong track record of improving Gross written premiums which can in part be attributed to its record of value adding acquisitions. The company has completed more than 41 acquisitions and is showing no sign of slowing down.
(Source: AmTrust Financial Investor Presentation)
The strong growth in gross written premiums is in addition to the strong growth in book value per share seen at the company. It has grown its book value per share at a CAGR of 21,8% from 2006 to the end of its 3 rd quarter of the current financial year.
The company reported an increase of approximately 16% in its net earned premiums for the first nine months of 2016 over the same time period in the previous financial year. Diluted EPS did, however, show a decline as the company's effective rate of taxation increased from 8.5% to over 19%.
The stock is valued attractively, particularly given the company's continued growth. It is currently trading at a TTM p/e ratio of 11,24 which is above its 5-year average p/e ratio of 10,69 but below its industry groups average p/e ratio of slightly above 14. The stock is currently trading at 1,697 times book value which is below its 5-year average price to book value of 2,047.
Both stocks have shown strong dividend growth rates and continue to have payout ratios below 30%. I do, however, prefer AFSI over RE and believe that it will show a stronger dividend growth rate than RE in the coming years.
Disclosure: I am/we are long AFSI.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.