Property and casualty insurer, Cincinnati Financial Corp. (CINF - Analyst Report) has announced a 0.5 cent hike in its quarterly dividend to 40.75 cents per share. The dividend is payable on October 15, 2012, to shareholders of record as of September 9, 2012.
Following this dividend hike, shares of Cincinnati Financial yield approximately 4.12%. Management has increased the dividend every year for the past 51 years, with an average annual increase of 7% over the last five years.
Cincinnati’s annual dividend comes to $1.63 per share. The company last increased its dividend by 0.25 cents in October 2011.
The continuous dividend payment is supported by Cincinnati’s strong capital and continuous cash flow generation. The company had over $1 billion in cash and marketable securities as of June 2012. It targets a debt-to-total-capital ratio of less than 20%. At the end of 2011, this ratio was 15.0% compared with 14.3% at the end of 2009.
Cincinnati’s Board of Directors is committed to rewarding shareholders directly through cash dividends and by authorizing share repurchases. We are impressed by the company’s efforts to maintain the trend even after an economic downturn, thereby preserving shareholders’ income. Given the company’s track record, we expect it to keep increasing dividends in the future as well.
Though Cincinnati has been facing a top-line compression over the recent years mainly due to soft market pricing, it earned higher premium revenues in the second quarter of 2012. This reflects a gradually improving insurance pricing environment, along with gains from improvement initiatives taken by the company.
In the recently reported second quarter of 2012, Cincinnati recorded operating earnings of 17 cents per share, striding ahead of the Zacks Consensus Estimate of 11 cents per share. Earnings rebounded from a loss of 58 cents incurred in the year-ago quarter.
We believe in the near term, the stock will be helped by dividend increases and stock buyback activities, with actual business growth remaining subdued.
The company ranks among the top 25 leading U.S. property and casualty insurer, and carries an A+ rating from A.M. Best. It competes with Assurant Inc. (AIZ - Analyst Report), Chubb Corp. (CB - Analyst Report), RLI Corp. (RLI - Analyst Report) among others.
Cincinnati currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We also maintain our long-term “Neutral” recommendation on its shares.