Tower Group Raises Dividend – Analyst Blog

Earlier during the week, property and casualty insurer Tower Group Inc. (TWGP) announced a 5.5 cent increase in quarterly dividend to 12.5 cents from 7 cents paid in the second quarter of 2010. This hike represents a 79% increase from the previous dividend.

With the increased annual dividend of 50 cents per share, Tower’s dividend yield stands at 2.2%. The current yield brings it at par with its peer companies. Tower increased its annual dividend by 50% in 2007, 33% in 2008 and 30% in 2009. 

Tower’s balance sheet solidity is derived from its robust cash flow generation. Besides, its debt-to-capital ratio stands low at 21.4% as of June 30, 2010, with cash and cash equivalents of $348.5 million.

As with all other property and casualty insurers, Tower Group is facing a soft insurance market, forcing it to resort to expanding inorganically. It had made four acquisitions in 2009, thereby broadening its commercial business lines and specialty business. Also during the quarter, Tower completed the acquisition of the personal lines division of OneBeacon Insurance Group, which will aid in expanding the company’s Personal Lines product offerings and capabilities.

Tower is focused on a capital management strategy that includes raising the dividend payout ratio, which will increase the distribution of current earnings to stockholders. Management is also aggressive on share repurchases to manage capital more effectively. It is also open to further alliances that would further strengthen and diversify the company’s business model.

During the second quarter, Tower earned 57 cents, beating the Zacks Consensus Estimate by a penny, helped by higher premiums.

Management expects third quarter 2010 operating earnings per share to be in a range of 75 cents to 80 cents. For the full year 2010, operating earnings per share estimate range has been trimmed to $2.55- $2.65 from the previous expectation of $2.60 to $2.70.