5 Insurance Companies With Attractive Dividends

Bob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Editor's Note: The original article references Prudential's annual dividend payment. As of Nov. 7, Prudential resumed their quarterly dividend payment schedule. This article has been updated.

Insurance companies enjoy a two-sided business model:  they earn cash from premiums paid on the policies they write and then again through investing the large pools of their accumulated capital.  Many insurance companies are trading at attractive price-to-earnings and price-to-book valuations that also pay dividends to shareholders.  Below are five stocks in the insurance industry that have solid dividends:

AFLAC (NYSE: AFL) is a $24 billion company that provides supplemental health and life insurance in the United States and Japan.  Interestingly, most investors probably consider AFLAC to be an American company, but 75% of the company’s business is derived from Japan.  AFLAC got off to a great start in 2012.  Total revenues through the first nine months of 2012 increased 17.3%, and earnings per share jumped from $2.98 to $4.87 during the period.  AFLAC raised its dividend last November for the 30th year in a row.  The dividend is extremely well cushioned—AFLAC has a payout ratio near 20%, and a solid yield of 2.75%.

Travelers (NYSE: TRV) has a market value of $29 billion and is a Dow Jones Industrial Average component.  Travelers trades at a trailing price to earnings ratio of 10 and a price to book ratio of 1.12.  Travelers did a decent job of navigating the tough 2012 economic environment, with net revenues up 1% during the first three quarters versus the prior year.  Net income almost tripled as the company benefited from a big drop in claims expenses. Travelers has raised its dividend every year since 2004 and yields 2.4% at current prices.

MetLife (NYSE: MET) provides insurance and a variety of financial products in the United States and internationally.  MetLife has a $39 billion market capitalization and a fairly cheap valuation: the forward P/E ratio is only 6, and the price-to-book ratio stands at 0.6.  MetLife pays an annual dividend that yields 2%.  The company has an impressive dividend compound annual growth rate of more than 13% over the last ten years.  However, the company hasn’t been able to raise its dividend in five years.  MetLife struggled during the first nine months of 2012, with net revenues decreasing by 5% and expenses increasing by 7%.  MetLife is trading at cheap multiples, but investors would be wise to wait for full-year 2012 results and 2013 guidance before jumping in.

Prudential (NYSE: PRU) is a $26 billion company with a dividend yield of roughly 2.8%.  The price to book ratio for Prudential is 0.7, and the forward price to earnings ratio is slightly more than 7. Prudential has a five-year CAGR of nearly 7%.  Prudential’s core premiums business performed extremely well over the first nine months of the year, increasing more than 30% versus the same period in 2011.

Mercury General (NYSE: MCY) is a $2 billion market-cap company that operates in the property and casualty insurance industry.  The company’s business is primarily writing automobile policies in the United States.  Mercury General last increased its dividend to shareholders in October, and has now raised its dividend for 26 years in a row.  The stock currently yields more than 6% at current prices.  The stock is modestly valued, with a trailing price-to-earnings ratio of only 10 and a price-to-book ratio of 1.14.

Successful companies in the insurance industry have the flexibility to provide shareholders the increasing stream of dividends that income investors love to see.  For investors looking to gain exposure to the financial services industry who may be wary of buying stocks in banks, insurance companies such as these five are worthy of additional consideration.

Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Aflac. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus