In an effort to distribute more profit among shareholders, the board of directors of The Hartford Financial Services Group, Inc. (HIG) increased its dividend by 50%. The company will now pay a quarterly dividend of 15 cents per share, up from 10 cents per share paid on Jul 1, 2013.
The newly increased dividend will be paid on Oct 1, 2013 to the shareholders of record as of Sep 3, 2013. Based on the closing share price of $31.36 on Jul 26, the increased dividend implies a dividend yield of 1.9%. It is better than few other multi-line insurers – Cigna Corp. (CI) with a yield of 0.1%, CNO Financial Group Inc. (CNO) with a yield of 0.8% and Assured Guaranty Ltd. (AGO) with a yield of 1.7%.
The dividend hike was primarily supported by Hartford Financial’s strong balance sheet and its ability to generate healthy cash flow. Based on the 455.9 million shares outstanding as of Apr 24, 2013, Hartford Financial requires $68.4 million for the payment of the quarterly dividend. Cash balance at the end of the first quarter stood at nearly $2 billion, sufficient to meet the additional requirement.
The increase in dividend came after 2 years. The last hike was approved in Feb 11, wherein Hartford Financial raised its dividend payout by 100% to 10 cents.
In Feb 2013, Hartford Financial announced a capital management plan that is aimed to boost financial flexibility by reducing debt and returning more value to shareholders through share repurchase. Hartford Financial has sold many non-core businesses to focus on its U.S. operations, reduce expenses, and enhance operating leverage. Measures to improve financial and risk management and increased focus on high-yielding mutual funds business are other positives.
These drivers have helped the multi-line insurer to deliver solid results. The company delivered 2 straight quarters of positive earnings surprise with an average beat of 45.4%. However, we cannot conclusively say that it will continue with the trend into the second quarter. This is because Expected Surprise Prediction or ESP (Read:Zacks Earnings ESP: A Better Method) is -1.41% but the stock carries Zacks Rank #3 (Hold) (Stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings). The Zacks Consensus Estimate for the second quarter is currently pegged at 71 cents and the company is scheduled to report its second-quarter earnings tomorrow.
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