Back to top

Image: Bigstock

American Financial's (AFG) Board Okays $2 Special Dividend

Read MoreHide Full Article

The board of directors of American Financial Group (AFG - Free Report) approved a special cash dividend of $2.00 per share. With the latest approval, the company declared $26.00 per share in special dividends in 2021.

This Zacks Rank #3 (Buy) property and casualty insurer, well-supported by its financial position, estimates spending $174 million for the special dividend. Shareholders of record as of Dec 24 will receive the special dividend on Dec 30.

American Financial has been paying out special dividends since 2012. It has increased dividends for 16 years at a 10-year CAGR of 12.3%. With the latest approval, AFG will be paying out 17 special dividends in 10 years. Its dividend yield of 1.6% surpassed the industry average of 0.4%.

Co-CEOs, Carl H. Lindner III and S. Craig Lindner stated, “Our excess capital remains at a significant level, which affords us the financial flexibility to grow our Specialty P&C business organically, and through acquisitions and start-ups that meet our target return thresholds make opportunistic repurchases of AFG’s stock and pay additional dividends."

American Financial, a niche player in the P&C and annuity markets, has traditionally maintained moderate adjusted financial leverage with good cash flow and significant excess capital. The robust operating profitability at the P&C segment, the stellar investment performance and effective capital management support shareholders’ return.  

A consistent price increase in the P&C business, better industry fundamentals, a high renewal ratio, a favorable combined ratio and strong capital management should help American Financial maintain the streak.

Shares of AFG have gained 56.4% year to date (YTD), outperforming the industry’s rise of 11.9%. Superior underwriting discipline and a sound capital structure should help it retain the momentum.
 

Zacks Investment ResearchImage Source: Zacks Investment Research

Given the solid capital level of the insurance industry and an improvement in the operating backdrop, insurers like Erie Indemnity Company (ERIE - Free Report) , The Hanover Insurance Group, Inc. (THG - Free Report) and AXIS Capital Holdings Limited (AXS - Free Report) have resorted to effective capital deployment to enhance shareholders’ value.

The board of directors of Erie Indemnity approved a 7.2% hike in its dividend. Erie Indemnity increased dividends each year along with occasionally paying special dividends and buying back shares, reflecting its operational excellence and commitment to return value to its shareholders. Its dividend witnessed a 10-year CAGR of nearly 8%.

An improvement in premiums of homeowners and commercial multi-peril products, strengthening business platforms and the identification and development of new sources of revenues should help ERIE sustain the dividend hikes.

The board of directors of The Hanover Insurance Group approved a 7% hike in its quarterly dividend, reflecting its operational excellence and commitment to return value to its shareholders. The Hanover Insurance Group’s dividend witnessed an 11-year CAGR of 10.5%.

Prudent management of a business mix, focus on the growth of the most profitable product lines, stable retention, better pricing and a strong market presence should support THG in raising dividends each year.

The board of directors of AXIS Capital approved a 2.4% hike in its annual dividend to boost shareholders’ value backed by its balance-sheet strength.

AXIS Capital should be able to enhance shareholder’ value by riding on Specialty Insurance, Reinsurance plus Accident and Health, exiting the underperforming lines, investing in more attractive markets, and entering new markets, thus improving portfolio mix and underwriting profitability.

Shares of THG and AXS have gained 12.3% and 2.2%, respectively, YTD while that of ERIE lost 20.4%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.