How do insurance companies make money? While they aim to profit from underwriting, gains from investing premiums, also known as the “float,” ahead of paying out claims, is another vital income stream for the industry, particularly for property and casualty (P&C) insurers.
For insurers successful at underwriting at breakeven or profitable levels and at successfully investing the “float” in steady fixed-income investments, this has created the ability to consistently pay out and raise dividends over time. Hence, if you are a long-term, dividend-focused investor, you may want to consider adding a basket of these insurance stocks to your portfolio.
Missed AI’s “Act 1”? Act 2 Could Be 14x Bigger. Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005. But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout. Continue »
Each of the stocks below has a strong prior track record of dividend growth, with a strong chance of this trend continuing in the decade ahead: Aflac (NYSE: AFL), Chubb (NYSE: CB), Cincinnati Financial (NASDAQ: CINF), Old Republic (NYSE: ORI), and Travelers Companies (NYSE: TRV).
Aflac is a dividend and buyback legend
Aflac has raised its dividend for 45 consecutive years. Currently, the stock has 2% forward dividend yield. While this may sound modest, keep in mind that Aflac has historically raised its payouts at relatively high rates, with dividend growth averaging 11.4% over the past decade.
The insurer also has a long track record of share repurchases. Since 2022, Aflac’s outstanding share count has fallen by nearly 100 million, or nearly 16%. This has helped steadily boost earnings and share appreciation, with the stock rising nearly 250% during this time frame.
Admittedly, what has worked over the past decade may not work as strongly in the decade ahead. Aflac’s latest dividend increase was only 5.1%. The company’s flagship Japanese unit also continues to experience a slowdown in premiums earned. Still, until more signs emerge that this slowdown represents the “new normal” for Aflac, consider it a strong choice for dividend growth investors.
Chubb remains a P&C ‘masterpiece,” and a top Berkshire holding
Last summer, Barron’s referred to Chubb — purveyor of policies like its “Masterpiece” high-end homeowner’s insurance policies — as a “masterpiece” among insurance companies. This moniker appears justified, given the company’s continued strong track record of underwriting profitability. Strong underwriting profitability has also given way to strong earnings, dividend, and share price growth over the five years, with the stock delivering total returns of 105%, topping the S&P 500’s 83% return during the same time frame.
