On Tuesday, home and auto insurer, The Allstate Corp. (ALL) announced a dividend increment of 5% from the prior 20 cents, marking the first hike since 2008. The quarterly cash dividend of 21 cents will be paid on April 1, 2011 to the shareholders of record as on March 11, 2011.
The last time Allstate hiked its quarterly dividend was in February 2008, when the company augmented it to 41 cents from 38 cents. However, following the hike, Allstate posted losses for three consecutive quarters, which led to sharp dividend cuts to 20 cents.
The company tightened the belt in 2010 and its improved performance helped to return to profitability. As a result, in November 2010, Allstate announced a share repurchase program worth $1.0 billion to be executed by the end of 2012.
Despite the economic turmoil in the last couple of years, the company has been working vigorously to tame its liquidity and capital position in an efficient manner. Since 1995, Allstate has returned more than $28 billion to shareholders through dividends and share repurchases.
Further, with managed investment portfolio of over $100.5 billion, at the end of 2010, Allstate recorded an estimated $15.3 billion of statutory capital surplus at the insurance companies and $3.8 billion of investments at the holding company, reflecting a well-capitalized position for future growth.
Earnings Recap
Allstate’s fourth quarter operating earnings of 50 cents per share came in dramatically behind the Zacks Consensus Estimate of 86 cents and $1.09 per share recorded in the year-ago quarter. Total net revenue grew 0.4% year over year to $8.09 billion and also came in about 16% higher than the Zacks Consensus Estimate of $6.98 billion.
Results for the quarter deteriorated primarily due to high catastrophe losses and increased frequency of auto insurance claims in the Property-Liability insurance segment, coupled with low investment income. However, prudent capital management and strong liquidity were quite impressive during the reported quarter. This is reflected from growth in book value per share.
Our Take
We anticipate continued benefits from Allstate’s diversification, superior financial strength rating, improved cash flow and proactive approach to investment. These factors have helped Allstate gain the second-largest personal lines writer position in the US, which also reflects its competitive strength against arch rivals such as Berkshire Hathaway (BRK.B) and The Travelers Companies (TRV).
However, Allstate’s exposure to catastrophe risks, capital losses and volatility in pricing, interest and loss costs will continue to impact the premiums and investment portfolio in the upcoming quarters.
On Tuesday, the shares of Allstate closed at $31.74, down 1.2%, on the New York Stock Exchange.
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