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Recently, the board of United Fire Group, Inc. (UFCS - Snapshot Report) approved a 20% increase in its quarterly cash dividend to 18 cents per share from 15 cents paid earlier. The new dividend will be paid on Jun 14, 2013 to shareholders of record as of May 31, 2013.

United Fire will require $4.6 million to pay the dividend, based on the outstanding share count of 25.3 million as of Mar 31, 2013. The company has ample financial resources for the payment, with cash and cash equivalents of $101.9 million as of Mar 31, 2013.

Moreover, United Fire generated operating cash flow of $31.7 million in the first quarter of 2013, which is more than enough to cover the dividend payment.

The strong financial position allowed the company to raise its dividend to boost shareholder value. United Fire has been consistently paying quarterly cash dividends since Mar 1968. However, the company revealed that it prefers investing in profitable business ventures for enhancing shareholder value and will lay more emphasis on those opportunities.

This is the first dividend hike since Nov 2007, when United Fire increased the dividend to 15 cents from 13.5 cents. The new dividend implies an annual dividend yield of 2.4%, based on the closing share price of $29.52 as of May 15, 2013.

United Fire currently carries a Zacks Rank #1 (Strong Buy). Other property and casualty insurers with the same Zacks Rank are Montpelier Re Holdings Ltd. (MRH - Analyst Report), Hilltop Holdings Inc. (HTH - Analyst Report) and AXIS Capital Holdings Limited (AXS - Analyst Report).

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