In its concerted effort to enhance shareholder value, ACE Limited (ACE) intends to boost its dividend. The board of directors will propose a 24% increase in quarterly dividend at the extraordinary general meeting scheduled on Jan 10, 2014.
ACE Limited, if approved, will now pay a quarterly dividend of 63 cents ($2.52 on an annualized basis), up from 51 cents ($2.04 on an annualized basis). Previously, in May 2013, the board had announced a 4% increase in quarterly dividend from 49 cents ($1.96 on an annualized basis).
In the past, ACE Limited has maintained a consistent track record of paying quarterly dividends and increasing its dividend payout each year. The current dividend is thus not an exception. Based on yesterday’s closing price of $101.53, the company’s dividend yield is 2.48%, much above the industry equivalent of 2.06%. The company intends to pay out around 30% of its operating earnings to its shareholders.
Besides the dividend hike, the board of ACE Limited also approved a buyback program, authorizing the company to repurchase $2 billion worth of shares through Dec 31, 2014. The current program replaces the earlier one that has $228 million remaining through Dec 31, 2013.
ACE Limited eyes repurchase of $1.5 billion worth of shares by 2014-end. In the first nine months, the company spent $233 million to repurchase 2.7 million shares.
The dividend hike and new authorization by ACE Limited is duly supported by the company’s sturdy financial position. Cash and cash equivalent increased nearly 25% from 2012-end to $768 million at third-quarter end. Retained earnings also stand solid at $12.8 billion, improving 38%. A sustained solid operational performance continues to cushion the company’s sturdy financial position.
Several insurers are treading the same path as ACE Limited by announcing dividend increase or share repurchases authorizations. They foresee these as strategies to retain investor confidence as well as attract new investors. Recently, property and casualty insurer Montpelier Re Holdings Ltd. (MRH) approved a 9% increase in its quarterly dividend to 12.50 cents per share and also raised its share buyback authorization by $150 million.
While the board of directors of Everest Re Group Ltd. (RE) increased its quarterly dividend by 56% to 75 cents per share, the board of Assurant Inc. (AIZ) approved a share buyback program whereby the company is authorized to repurchase shares worth $600 million.
ACE Limited has been on an uptrend since it reported solid third-quarter earnings on Oct 23. Shares have gained almost 5% since Oct 23. With the company’s efforts to boost shareholder value, we expect the momentum to continue asserting investor confidence in the company. ACE Limited returned $576 million to shareholders via share buyback and dividend in the first nine months of 2013, higher by 16% year over year.
There was no earnings momentum over the last 7 days. With the news of proposing increase in dividend and approving the new buyback program, we expect analysts to raise their estimates exerting upward pressure on the Zacks Rank. ACE Limited presently carries a Zacks Rank #2 (Buy).
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