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American Financial's (AFG) Board Okays 12% Dividend Hike

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The board of directors of American Financial Group, Inc. (AFG - Free Report) approved an 12% hike in its annual dividend in its concerted efforts to enhance shareholder value. With this, the payout now stands at $2.24 per share compared with the earlier payout of $2.00 per share.

Prior to this, the company had raised its quarterly dividend by 11.1% to $2.00 per share last August, which marked the 16th straight year of dividend hike.

Historically, it boasts a consistent increase in dividends with the metric witnessing a five-year CAGR (2017-2021) of 9.9%. Based on the stock’s Aug 18 closing price of $65.98, the new dividend will yield 1.6%, better than the industry average of 0.5%. This makes American Financial an attractive pick for yield-seeking investors.

The dividend hike reflects the insurer’s strong financial condition, liquidity, and prospects for long-term growth of this niche player in the P&C market.

Apart from raising its dividend payout, the company pays out special dividend. In fact, it boasts paying out 14 special dividends in 10 years. The company has been paying out special dividends since 2012. While on Aug 2, it paid a special cash dividend of $2.00 per share, in June 2021, it paid a special, one-time cash dividend of $1.2 billion or $14.00 per share concurrent with the sale of its Annuity business.

American Financial has traditionally maintained moderate financial leverage of around low 20%, with good cash flow and interest coverage ratio. As of Jun 30, 2021 excess capital was about $3.2 billion, which includes parent company cash of about $3 billion. The company intends to hold back about $200–$300 million of the excess capital to maintain flexibility for any future opportunity. The company expects to continue to have significant excess capital and liquidity throughout 2021 and beyond.

Robust operating profitability at its P&C segment, a solid investment performance, exit from the underperforming Annuity business to intensify focus on its Specialty P&C segment, consistent price increase, a high renewal ratio, favorable combined ratio and strong capital management are likely to help the company in sustaining the dividend streak.

Shares of this Zacks Rank #1 (Strong Buy) property and casualty insurer have rallied 56.1% in a year compared with the industry’s increase of 19.8%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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Other insurers that have engaged in enhancing shareholders’ value include Old Republic International Corporation (ORI - Free Report) . Its  board of directors approving a special, one-time cash dividend of $1.50 per share. The board of directors of Unum Group (UNM - Free Report) and RLI Corp. (RLI - Free Report) hiked quarterly dividend by 5.3% and 12%, respectively.