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Recently, ProAssurance Corporation (PRA - Analyst Report) announced the authorization of a 2:1 stock split along with a special dividend of $2.50 per share. Additionally, the company will pay a regular quarterly dividend of 25 cents per share to its shareholders.

Both the cash dividends (regular and special) and the stock dividend will be paid on December 27, 2012 to shareholders of record as of December 17, 2012. Usually, ProAssurance pays the regular dividend for the fourth quarter in January each year.

Both the cash dividends will be paid on the increased number of outstanding shares following the stock split. Thus, while the per-share quarterly dividend remains the same as earlier, ProAssurance’s total dividend payment will double due to the doubling of outstanding shares.

Considering ProAssurance’s closing share price of $90.30 as of December 4, 2012, the post-split quarterly dividend translates into an annualized dividend yield of 2.2%. However, the dividend policy, which involves a payment of $1 per share annually, is not obligatory. The board of ProAssurance will study the company’s financials and its future outlook before taking a final decision about its future dividend payments.

Management considers the stock split and dividend payment to be ideal actions considering the present market scenario. While returning capital to shareholders at present, these transactions will leave enough capital flexibility to permit acquisitions and share buybacks in the future.

The stock split should make ProAssurance’s shares more affordable, thereby boosting its liquidity. This in turn should enhance the trading volume of these shares.

ProAssurance carries a Zacks #2 Rank (Buy). We retain our long-term ‘Neutral’ recommendation on the shares. EMC Insurance Group Inc. (EMCI - Snapshot Report) – another operator in the property and casualty industry – carries a Zacks #1 Rank (Strong Buy).

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