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American Financial (AFG) to Share More Profits, Ups Dividend

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American Financial Group (AFG - Free Report) recently announced a substantial increase in its annual common stock dividend, showcasing its commitment to rewarding its shareholders. This move is a testament to the insurer’s strong financial position and long-term growth prospects.

Approved by the board of directors, the regular annual dividend has now been increased to $2.84 per share of common stock from $2.52. This increment represents a remarkable 12.7% rise over the previously declared rate. From October 2023, the increased dividend will be disbursed quarterly at a rate of 71 cents per share of common stock.

A History of Consistent Dividend Growth

American Financial has built a reputation for unwavering dedication to its shareholders. For the last 18 years, the company has consistently raised its dividend, demonstrating its commitment to creating value for investors. Notably, the 10-year compound annual growth rate for the company's regular annual dividends stands at an impressive 12.4%. This track record underscores its prudent financial management and stability.

Strategic Capital Deployment and Confident Outlook

The co-chief executive officers of AFG, S. Craig Lindner and Carl H. Lindner III, expressed their confidence in the company's financial position and growth prospects. They affirmed that dividends remain an essential facet of the company's capital management strategy, allowing excess capital to be effectively returned to shareholders. This approach not only reflects the company's current financial health but also signals its positive outlook.

Financial Strength and Capital Management

American Financial has a moderate adjusted financial leverage of around 20%. With robust cash flow and favorable interest coverage ratio, the company is well-positioned to support its dividend policy. As of Jun 30, 2023, the company's excess capital amounted to approximately $700 million, which includes a substantial cash and investment reserve of about $550 million. Additionally, the company boasts a solid credit rating with credit rating agencies.

In the first half of 2023, American Financial successfully repurchased shares amounting to $67 million. Furthermore, the insurer declared a special cash dividend of $4 per share, demonstrating its commitment to delivering value to shareholders. The company anticipates generating significant excess capital throughout the remainder of 2023, which will potentially enable it to allocate up to $500 million for share repurchases or additional special dividends.

Zacks Rank and Price Performance

American Financial carries a Zacks Rank #3 (Hold) currently.

Shares of AFG have lost 15.7% in a year compared with the industry’s increase of 8.9%.

Zacks Investment Research
Image Source: Zacks Investment Research

Another Insurer on the Same Path

First American Financial Corporation’s (FAF - Free Report) board of directors approved a 2% hike in its quarterly dividend to return more profits to stockholders. The insurer will pay out 53 cents per share compared with 52 cents per share paid in May 2023.

The dividend hike and increase in repurchase authorization reflect the insurer’s strong financial condition, liquidity and longstanding commitment to returning capital to stockholders. First American enjoys a strong liquidity position to enhance operating leverage. Its strong liquidity not only mitigates balance sheet risks but also paves the way for accelerated capital deployment.

Stocks to Consider

Some better-ranked stocks from the property and casualty insurance industry are Arch Capital Group Ltd. (ACGL - Free Report) and Axis Capital Holdings Limited (AXS - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Arch Capital has a solid track record of beating earnings estimates in each of the last trailing four quarters, the average being 26.83%. In the past year, ACGL has gained 18.8%.

The Zacks Consensus Estimate for ACGL’s 2023 and 2024 earnings per share is pegged at $6.58 and $7.25, indicating a year-over-year increase of 35.1% and 10.2%, respectively.

Axis Capital has a solid track record of beating earnings estimates in three of the last four quarters and missing in one, the average being 9.75%. In the past year, AXS has lost 0.2%.

The Zacks Consensus Estimate for AXS’ 2023 and 2024 earnings per share is pegged at $8.18 and $9.17, indicating a year-over-year increase of 40.7% and 12.1%, respectively.

Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.


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