The board of directors of XL Group (XL) approved a 10% increase in its quarterly common stock dividend. The company will now pay a quarterly dividend of 11 cents per share, up from 10 cents. The increased dividend will be paid on March 31 to shareholders of record as of March 15.
The dividend hike was primarily supported by XL Group’s strong balance sheet and its ability to generate healthy cash flow. XL Group’s annualized dividend yield of 1.62%, exceeds that of the industry’s 1.47%. XL Group ended 2010 with a cash balance of $3 billion.
Apart from hiking dividend, XL Group also buys back shares in its effort to boost shareholder value. In 2010, XL Group spent $520.0 million to buy back 25.7 million shares.
XL Group reported its fourth-quarter 2010 operating income of 74 cents per share beating the Zacks Consensus Estimate by 7 cents. Better than expected results stemmed from increase in property and casualty underwriting income.
The Zacks Consensus Estimate for first-quarter 2011 is 43 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $2.18 per share and $2.25 per share.
ACE Limited (ACE) which competes with XL Group, recently announced its intention to propose a 6.1% increase in the quarterly dividend as part of the company’s consistent effort to enhance shareholder value. The increase of dividend will be proposed at the Annual General Meeting scheduled on May 18, 2011. ACE, if approved, will now pay a quarterly dividend of 35 cents.
Based on the company’s conservative underwriting practices and repositioned P&C portfolio, we expect XL Group to fare well going forward. The company is also taking initiatives to expand its operations and is aiming to tap the opportunities in the growing economy.
XL Group has also obtained a license from China Insurance Regulatory Commission to function as a property and casualty company in Shanghai. This license, to operate in Shanghai, widens XL Group’s presence in the emerging market.
XL Group believes that China, with a growing insurance market, offers opportunities to write more premiums. Also, the addition of CIMI Professional to XL Insurance will broaden the latter’s exposure to long-term care industry.
We maintain our long-term Neutral recommendation on XL Group. The quantitative Zacks #4 Rank (short-term Sell rating) for the company indicates downward pressure on the stock over the near term.
Based in Dublin, Ireland, XL Group is a leading global provider of insurance, reinsurance and financial risk solutions to enterprises and insurance companies.
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