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4.9% Yielding Prudential Is Still A Buffett Style 'Fat Pitch'

Apr. 09, 2021 7:00 AM ETPrudential Financial, Inc. (PRU)96 Comments

Summary

  • Today we wanted to point out an example of a wonderful company at a still wonderful price, Prudential Financial.
  • After a 152% rally that has put even the tech-heavy Nasdaq to shame, Prudential is still potentially an anti-bubble high-yield blue chip.
  • Prudential is still 28% undervalued and yielding a very safe 4.9%, more than three times the S&P 500.
  • Looking for more investing ideas like this one? Get them exclusively at iREIT on Alpha. Learn More Ā»
Baseball Pitch
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This article was coproduced with Dividend Sensei.

Wait for a fat pitch and then swing for the fences." - Warren Buffett

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Brad Thomas profile picture
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Brad Thomas is the CEO of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving overĀ 175,000Ā investors around the world. WMR has a team of experienced multi-disciplined analysts covering all dividend categories, including REITs, MLPs, BDCs, and traditional C-Corps.

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He is the #1 contributing analyst on Seeking Alpha in 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022 and 2023 (based on page views) and has overĀ 111,000Ā followers (on Seeking Alpha). Thomas is also the author of The Intelligent REIT Investor Guide (Wiley) and is writing a new book, REITs For Dummies (Wiley/Amazon).Ā Ā 

Thomas received a Bachelor of Science degree in Business/Economics from Presbyterian College, and he is married with 5 wonderful kids. He has over 30 years of real estate investing experience and is one of the most prolific writers on Seeking Alpha. To learn more about Brad visit HERE.

Analystā€™s Disclosure: I am/we are long PRU. 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.

Dividend Sensei is also Long PRU.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (96)

Sergi Medina profile picture
Very interesting and useful analysis, as always! I noticed the potential too, that's why I've been adding lately. Amazing PRU, awesome dividend!
Brad Thomas profile picture
@Sergi Medina Thank you....

PS: Message me if you would like to get 30% off iREIT on Alpha today....
It's my birthday and I want to give everyone a gift šŸŽ šŸŽ šŸŽ
A
@Brad Thomas Thanks for the article Brad.

What would you say the reason is behind why insurance companies trade at very low multiples these last few years? Both Prudential/Manulife and I suspect others have this attractive feature.

Market still emotionally scarred from 2008? I remember the whole AIG thing but was young at the time. Or is Mr. Market pricing in possible future higher interest rates that somehow impact insurance companies greater than other industries?

I'm almost convinced but seems like too nice a deal.
Brad Thomas profile picture
@AdNeMa The market is pricing most insurance companies about 10X earnings because of several factors including higher regulations, and lower interest rates for the foreseeable future.

Be careful with assuming rules of thumb apply to all industries. If you ever see insurance companies trading at 15X it's likely an epic bubble.

Come and visit us at iREIT on ALpha...

All the best - Brad
i
What about their announcement on reinsurance today?
T
And PRU breaks above 100. Wow. I'm up over 50% in 9 months not including dividends on a "rock solid" company. Not a high flier. And up 30% in 5 months on the larger retirement portion of my PRU holdings, not including dividends.

But if it gets to 120 by the end of the year, I'm going to have to lighten my retirement portion. It's possible.
ALLDAY1 profile picture
@cardinal933
Good for you I am up only a paltry 47%, but still currently not my best stock as my CSWC is up 84% . I thought about reducing my share count by selling some but like the .52 dividend on CSWC is simehow satisfying and well I don't need too. My only regret about PRU is that I do not have more shares (currently 549 ) and while this may seem like a silly reason for owning it even after I did the research and was still on the fence about investing something that I read said "It's an insurance company, you can't go wrong!" That was the final push.
Anyway GOOD FOR YOU AND CONGRATS!

Allday
T
@ALLDAY1 Thanks. You too. But if it gets to 120 in the next year or so, I will be very tempted to trim my position.
T
@cardinal933 I know, right? This stock market is making everybody look like a genius. So enjoy it while it lasts!
m
So PRU cut their dividend during the Great Recession but not the pandemic? Decent, but not quite the rock it uses for a brand.
T
@momoneymoproblems1 - you don't know what you're talking about. Do some homework.

PRU only cut their dividend during the Great Recession because (listen carefully now) the Feds REQUIRED them to cut it. All banks and systemically important financial institutions including PRU were so required. They reinstated it just as soon as the Feds let them do so (2010).

So do your homework before making up stuff.
ALLDAY1 profile picture
@cardinal933 I need a little more information on the dividend cut during the recession as this is the only thing I could find

For the first time, Prudential Financial Inc. of Newark, N.J., has cut its shareholder dividend for 2008.
Shareholders will receive an annual dividend of 58 cents per share of common stock Dec. 19, down by about 50% from the dividend paid out in 2007.
The carrier had a tough third quarter.
Prudential booked a net loss of $108 million, or 23 cents per common share, for its financial services business, which includes investments, insurance and corporate units.
Thatā€™s down from a profit of $860 million, or 74 cents per common share, in the comparable period last year.

I could find nothing on the FED forcing that requirement.
Also at that time they were paying annually.

Thanks

Allday
T
@ALLDAY1 - yup they wrote down a ton of assets which on a GAAP basis reversed their profits to a loss. I was around at the time. BOA, JPM, WF, etc. including PRU had to cut their dividends. There is no way almost 15 years later that I can find the government circular about the systemic issues going on then. By 2010 they had restored the dividend completely and the rest is history - from .58 to $4.60 in a decade. If that doesn't impress you, nothing will.
And in this past pandemic year PRU increased the dividend yet again. LOL. Solid as a rock.

But you don't have to invest in PRU. That's why they call it a market. I'm up 50% in less than a year and have gobs of retirement income from it. I'll stand pat.
Brad Thomas profile picture
Don't miss Brad's Saturday Update:

seekingalpha.com/...
R
About ready to print a Benjamin
i
Another new 52 week high today. Wow.
T
@integritycoatings Pushing to 100. My gain is over 50% and I didn't even get it anywhere near the bottom. Glad I totally loaded up on it though.
R
@cardinal933
Same here....before anyone was yapping about it.
Now that is it doubled, we get an article everyday.

Sell at 100 and buy back lower?

Usually those big round numbers are hard to get through
T
@Richie-Rich - I am a dividend income focused investor, so I will hold unless PRU goes much higher and it becomes substantially over-valued (like another 20 points - which I don't see happening by the way). The dividend grows very rapidly over the years. This covid year is the first exception to big-time dividend growth in a decade, so I expect it to continue over the next 5 years. But, luckily, I hold a lot of it in a retirement account, so if I have to sell, much of my gains will be tax-deferred.
t
I got in at $60 and added for a cost average under $61. Let it ride!
T
@thebrucemac - good for you - you beat me by a few bucks. Yup - let it ride and the dividend on cost is stellar!
i
Hit a new 52 week high today. šŸ˜€
ALLDAY1 profile picture
@integritycoatings
For those of us who have PRU it was a great day and for those of us who also own PM it made it an even better day as it also had a 1 year high.

Wishing the best for everyone

Allday
muskellunge55 profile picture
@ALLDAY1 If it keeps doing this, it will become a capital gains stock, not a dividend stock. I don't necessarily smile when the price goes up. Just means I buy fewer shares in reinvestment. Less income.
ALLDAY1 profile picture
@muskellunge55
I do not drip. It becomes a cap gain stock only if you sell. If you only want dividends with small gains buy CEF's . You see how you invest is strictly a personal choice and part of investing can in most cases result in Cap Gains , and well it can result in a higher tax. A stock that never goes up in value means that he only return you get is the dividend. I expect more than that from my investment . Maybe you do not .

Allday
f
Hope you're right. I bought shares back in 2017 at $90 when price targets hovered in the $120-130 range and bullish articles like this were coming out weekly. Obviously those did not come to fruition in the short or medium-term. My hypothesis for PRU is that they'll benefit from aging populations, so as long as they deliver modest capital appreciation and a dependable/growing dividend, I'll be a happy shareholder.
Consideration profile picture
Amazing depth.
T
I bought a bunch at 64 and then a bunch more at 75. And I mean a bunch. Between this and my holdings in EPD, my retirement income is set and secure. And I have owned a lot of BX for over 5 years for a bit of capital appreciation and some WPC. Together its an amazing amount of income.

Dividend investing has its benefits if you are careful, pick companies that are secure and modestly diversify (I don't believe in owning 50 stocks like some here do).
m1chael profile picture
@cardinal933 20 is my magic number
ALLDAY1 profile picture
@m1chael Not everyone can handle a given number of positions. Only the investor knows what the number should be and at some point if and when the number is reached only they know if the next one is too many. There are also many investors who limit the number of shares in a given position and you see it all the time with certain comments such as I have a full position, a half position, or in case's like myself who will actually disclose the number of share owned. At one time I stated that I would own no position that was over 500 shares, but over the years have changed that number. The number had more to do with my fear of taking a loss as opposed to any other reason and now today although I don't like taking a loss I have overcome that fear ( well partially ) LOL I have 44 positions and all pay dividends across 3 portfolios m 2 income and an IRA. My largest position has 7671 shares and the average number of shares per position is 1157.

Allday
ALLDAY1 profile picture
Helps to solidify my earlier choice to invest as I was also able to buy at a reduced price due to covid
I have 549 shares

allday
smurf profile picture
Too few details in this article.

PRU is one I failed to act on a year or so ago. Fairly to over priced now.
Brad Thomas profile picture
@smurf i trust your sarcastic... this one is loooooooooooooong and packed with many nuggets.... all the best
Dividend Hummingbird profile picture
I love your ridiculous hyperboles... 'extra super duper speculative SWAN'
So silly
Brad Thomas profile picture
@itamar ככ I actually liked it :) to each his own ;)
Robert & Sam Kovacs profile picture
I knew this was you from the title before my subpar Indonesian WiFi even loaded your avatar.
Great article.
PRU is a layup.
Happy investing
Sam
Brad Thomas profile picture
@Robert & Sam Kovacs Ha.... Indonesian WiFi... Huh? Take care and thanks for reading.
Robert & Sam Kovacs profile picture
@Brad Thomas Yes, I've been waiting on Indonesian islands since the onset of the pandemic... it's a hard life.

Take care,

Sam
Clearview60 profile picture
Thank you for the in-depth article! Loving my PRU, currently my #5 holding.
o
Anybody worried about $LMND taking customers away? What if you combine tech to big data to make the whole process easy and fast? Although you'd think the execs at $PRU are spending a lot of money on tech as well.
ALLDAY1 profile picture
@only-temporary Expensive and no dividend.
For me unproven..

Allday
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