Property and casualty insurer, Chubb Corp. (CB) has raised its quarterly dividend by 5.1% to 41 cents per share. The dividend will be paid on April 3, 2012 to the shareholders of record as of March 16, 2012.
Chubb’s dividend yield of 2.4% compares quite favorably with other companies in the sector. Given the continued weakness in the global economy, low-interest rates and record catastrophe losses incurred in 2011, we are quite impressed with the company’s announcement of a dividend hike.
Chubb is known as a dividend aristocrat and has consistently paid dividend every year since 1902. It has also been increasing divided every year for the past 47 years, a continued indication of its financial strength and resilience in a cyclical industry.
Its five year dividend growth is 5.7%. Over the past decade, this dividend growth stock has delivered an annualized total return of 7.40% to its shareholders. The annual dividend payment has increased 8.30% per year over the same period, much higher than the earnings growth. We expect the company to keep moving on this track in the future.
Moreover, over the past ten years, the company has kept its dividend payout below 50% (except in 2001 and 2002). This trend ensures scope for a consistent annual dividend increase, which would keep large short-term fluctuations at bay.
Though for the past few years, Chubb’s revenue has remained flat due to a soft insurance market, it has increased its bottom line earnings per share by 6.4% since 2004. Chubb has been able to achieve this bottom line earnings growth by effectively managing its capital.
Chubb repurchases a huge number of shares each year. Since December 2005, the company has repurchased a total of 185 million shares at a total cost of almost $10 billion, representing approximately 45% of the outstanding shares. In 2011, the company returned almost $2.2 billion to its shareholders through share repurchases and dividends. Also, during the fourth quarter earnings release, the company announced a new $1.2 billion share repurchase program, which it intends to complete by the end of January 2013.
Chubb also maintains a strong capital position as evident from its AA financial strength rating (“FSR”) conferred by Standard and Poor’s and comparable ratings by other rating agencies. The company holds a comparatively small amount of debt compared to its assets.
We like Chubb more than other companies in the property and casualty insurance sector owing to its ability to maintain continuous dividend growth for more than four and a half decades. Though the company has not achieved any top-line growth in the recent years, it signifies the company’s strong underwriting principles. As such the company has been able to maintain a low combined ratio compared to its peers.
Going forward, we believe Chubb is poised to benefit from the gradually improving property and casualty insurance rates. However, some negatives such as low reinvestment yields and less favorable development can be a drag on the earnings.
One more company in our coverage universe that qualifies as a dividend aristocrat is its peer Cincinnati Financial Corp. (CINF) which raised its dividend for 51 years in a row.
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