The share price of ACE Limited (ACE - Analyst Report) has been on an uptrend since the property and casualty insurer announced its intention to propose a 3% increase in its quarterly dividend at the extraordinary general meeting scheduled on May 15, 2014.
The said announcement comes within two months time since the board had declared a 24% increase in quarterly dividend.
Post the final nod from the board of directors, ACE Limited will pay a quarterly dividend of 65 cents ($2.60 on an annualized basis), up from the current 63 cents ($2.52 on an annualized basis).
In the past, ACE Limited has maintained a consistent track record of paying quarterly dividends (paying dividends each quarter since it became a public company in 1993) and increasing its dividend payout each year. The current dividend hike is thus not an exception.
Based on Friday’s closing price of $97.87, the company’s dividend yield is 2.66%, much above the sector equivalent of 2.17%. The company has raised its dividend by about 150% over the last 5 years. The company intends to pay out around 30% of its operating earnings to its shareholders.
The dividend hike and new authorization by ACE Limited is duly supported by the company’s sturdy financial position that, in turn, is backed by continued solid operational performance. The company delivered positive earnings surprises in all the quarters of 2013 with an average beat of nearly 16%.
Concurrently, the board of directors also declared a quarterly dividend of 63 cents per share, payable on Apr 17 to shareholders of record as on Mar 28, 2014.
Several insurers are treading the same path as ACE Limited by announcing dividend increases. They foresee these hikes as strategies to retain investor confidence as well as attract new investors. Recently, the board of directors of AmTrust Financial Services, Inc. (AFSI - Snapshot Report) increased its dividend by 43% to 20 cents per share.
The board of directors of XL Group plc (XL - Analyst Report) called for a 14.3% hike in its quarterly dividend to 16 cents per share. Furthermore, the board of directors of Infinity Property and Casualty Corp. (IPCC - Snapshot Report) approved a 20% increase in its quarterly cash dividend to 36 cents per share.
Shares of ACE Limited have gained almost 3.5% since Jan 28 when it reported another quarter of strong results. With the company’s efforts to boost shareholder value, we expect the momentum to continue asserting investor confidence in the company. The company envisions 1.5 billion share buybacks in 2014.
ACE Limited returned $290 million to shareholders via share repurchases in 2013, much higher than $7 million shares bought back in the 2012. The company has already bought back $326 million shares since Jan 1, 2014 through Feb 27, 2014 and is left with $1.62 billion under its authorization.
There was no earnings momentum over the last 7 days. With the news of ACE Limited proposing an increased dividend and buyback program, we expect analysts to raise their estimates exerting upward pressure on the Zacks Rank. ACE Limited presently carries a Zacks Rank #2 (Buy).