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Prudential Financial Inc. (PRU - Analyst Report) has announced a 26% hike in its annual dividend to $1.45 per share from $1.15. The dividend will be paid on December 16, to shareholders of record at the close of business on November 22.
With this increased payout, Prudential’s dividend yield stands at 2.66%, up from the previous yield of 2.20%. This dividend yield is significantly higher than 2.10% for its nearest peer MetLife Inc (MET - Analyst Report).
The latest action reflects the company’s liquidity and capital strength. In the third quarter earnings release, Prudential reported a 30% increase in cash holdings to $15.5 billion.
Prudential has a sound track record of systematically deploying capital through share repurchases, dividend payments and acquisitions.
Last year, Prudential boosted its annual dividend by 64% to $1.15 per share, representing its largest dividend hike since 2007.
Last week, the company announced its third quarter earnings of $1.07 per share, substantially lower than the Zacks Consensus Estimate of $1.56. The impact came from $650 million of charges, which were a result of the recent stock market declines.
However, Prudential was able to grow its top line with the help of higher premium earned (up 37%) and investment income (up 16%).
The second-biggest U.S. life insurer has one of the best portfolios of businesses in the U.S. life insurance sector, with strong positions in high margin businesses coupled with a significant diversification.
Prudential is a leader in annuities and retirement products and garners a strong brand name. The company’s U.S operation sees a huge growth opportunity from the 78 million “baby boomers” who are set to retire, thus creating a strong demand for its financial protection products. Moreover, its international business is a feather in the cap generating a strong return on equity.
Prudential has been growing its international revenues for the past several years and the recent acquisition of Star-Edison will further deepen its international reach. Internationally, the company competes with U.K.-based Prudential Plc. (PUK - Snapshot Report), Aviva plc (AV - Snapshot Report) and China Life Insurance Company (LFC - Analyst Report).
Despite the inherent earnings volatility because of its equity sensitive products, Prudential’s core operating metrics remain solid. We expect the company to keep rewarding its shareholders with its strong ability to generate cash.
Prudential Financial currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Moreover, considering the fundamentals, we maintain our long-term Neutral recommendation on the stock.
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