Donegal Group Inc. (DGICA) (DGICB), a leading property and casualty insurer has decided to reward its shareholders with a new buyback program.
As per the latest share buyback authorization, Donegal will be able to purchase up to 0.5 million shares of its Class A common shares at market price from time to time through open market or privately negotiated transactions. The new program has no fixed expiration date.
Donegal’s financial strength allows it to continue with its buyback program and dividend payouts. Cash from operations, generated by Donegal in the first quarter of 2013 improved substantially year-over-year. We expect this to consistently cushion future buybacks. Since Feb 2009, the company repurchased 0.27 million shares through the first quarter of 2013 and is left with 0.03 million shares to be repurchased under its existing repurchase authorization.
During the first quarter of 2013, Donegal’s operating income declined year over year. We expect the new buyback program will help it recover earnings going forward. The Zacks Consensus Estimate for 2013 is currently pegged at 95 cents per share representing a year-over-year improvement of 30.14%.
Additionally, the board of directors announced a quarterly cash dividend of 12.75 cents per Class A common share and 11.50 cents per Class B common share. The dividend on Class A common stock represents a 4.1% increase over the company’s payout in the year-ago period. On the other hand, the dividend on Class B common stock represents a 4.5% increase over the payout in the prior year period. These dividends equate to a 3.48% and 2.15% yield respectively based on the share price of $14.66 and $21.37 respectively as of the approval day, Jul 18, 2013. Both the dividends will be paid on Aug 15, 2013 to shareholders of record as of Aug 1, 2013.
Donegal is scheduled to release its second quarter 2013 results on Jul 26, 2013. The Zacks Consensus Estimate for the second quarter of 2013 is currently pegged at 18 cents representing a year-over-year improvement of 350%.
Donegal carries a Zacks Rank #3 (Hold). Among other insurers, AmTrust Financial Services Inc. (AFSI), Hilltop Holdings Inc. (HTH) and ProAssurance Corporation (PRA) carry a favorable Zacks Rank #1 (Strong Buy) and are worth considering.
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