In a concerted effort to boost its shareholders value, the Board of Directors of American Financial Group Inc. (AFG) approved a dividend hike of 11.4%. American Financial will now pay a quarterly dividend of 19.5 cents per share, up from 17.5 cents paid on July 25, 2012. The increased dividend will be paid on October 25 to shareholders of record as of October 15.
American Financial has had a consistent track record of paying quarterly dividends and the current dividend is not an exception. Also, it has a history of raising its dividend each year. The last dividend hike was approved in October 2011, increasing 8% to 17.5 cent from 16.25 cents. Based on the closing share price of $37.61 on October 1, the increased dividend implies a dividend yield of 2.1%, compared with the earlier yield of 1.9%.
Based on 98 million shares outstanding as of June 30, 2012, the company requires $19.1 million for the payment of the quarterly dividend. Meanwhile, American Financial generated cash flow from operations of $226 million in the first half of 2012, which is more than adequate to cover the dividend payment. Also, its cash and cash equivalents at second quarter end increased 15% over 2011 end level. These sturdy financials well support the company’s dividend hike.
Over the last 7 days, there has been no movement in estimates. We believe the company’s effort to return more value to shareholders might encourage analysts to pull their estimates upward. The Zacks Consensus Estimate for third-quarter 2012 and full year 2012 are 62 cents per share and $3.20 per share, respectively.
American Financial Group currently holds a Zacks #3 Rank, translating into short term hold rating. The Travelers Companies Inc. (TRV), which closely competes with the company, shares the same Zacks Rank.
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