Insurance stocks can be income powerhouses.
Conventional wisdom holds that a persistently low interest rate environment is good for growth stocks because they can access loans very cheaply, but bad for financial stocks that depend on a decent return on their cash stockpiles. However, there are a number of insurance stocks that prove low interest rates don't mean low returns. A well-run insurance company can prosper thanks to a strong core business and not have to worry about the interest it earns to prop up profits. Best of all, well-run insurance stocks are income powerhouses. Premiums come in each month, with money to spare for regular dividends. Here are nine insurance companies that income investors should consider.
Old Republic International Corp. (ticker: ORI)
A dividend aristocrat, Old Republic is part of an elite group of income investments that raised dividend payouts at least once per year for at least 25 years. A bump in 2019 marks the 38th consecutive annual increase for ORI -- and Old Republic paid a special dividend to shareholders this year to boot. Its general insurance segment includes automobile, aviation, general liability and travel insurance. It also operates a sizeable title insurance segment that offers lenders and owners title policies to cover real estate transactions. The robust U.S. housing market has really helped and ORI has tacked on more than 35% gains in 2019 -- with a dividend on top of that.
Current yield: 3.5%
Allstate Corp. (ALL)
With shares up more than 20% so far in 2019, Allstate is another great example of a big insurance stock that's firing on all cylinders. The $36 billion property and casualty giant commands millions of policies across autos, home, boats and other assets -- and then passes a modest share of those premiums on to its investors via consistent dividends. The current dividend admittedly isn't all that impressive, yielding slightly less than 10-year U.S. Treasury bonds, but with the higher risk of a stock investment. However, with annual earnings per share of about $10 and annual dividends of about $2, there is plenty of potential for future dividend growth.
Current yield: 1.9%
American International Group (AIG)
Remember AIG, the poster child for the financial crisis and government bailouts? Well, after a decade of major restructuring you may want to give this infamous company a look. Prohibitions on the aggressive products that drove the company into the ground, as well as divestitures of non-core businesses both to streamline operations and pay back U.S. taxpayers, have resulted in a safer and more focused insurance firm. For instance, AIG's dividend has surged from 12.5 cents in 2015 to 32 cents. And the payouts remain about 25% of total profits, proving they are quite sustainable. Even with a checkered past, this should give income investors confidence to invest in AIG for the long term.
Current yield: 2.4%
Sun Life Financial (SLF)
Though not as well known a name to U.S. investors as some of the other big insurers, Sun Life is a $26 billion financial services giant in Canada that offers wealth management services along with life and health insurance products. While generally a sleepy business known for its low-risk income potential, insurance has been paying off for SLF with projected revenue growth of almost 10% this fiscal year and another 12% or so next year. And with a dividend that is roughly half of projected profits, continued business growth could very well result in dividend growth going forward as well.
Current yield: 3.6%
Arch Capital Group (ACGLP)
Headquartered in Bermuda to take advantage of favorable corporate laws, Arch Capital provides property, casualty and mortgage insurance and reinsurance products worldwide. Mortgage insurance has really been cranking for the $16 billion company lately, as a robust U.S. housing market in the last few years has led to a brisk business in PMI policies. Note that Arch Capital has two very different classes of stock, with ACGLP the one that pays dividends and a separate ticker that has simply seen rapid share appreciation. If you're an income investor, make sure you're after the one with a P in the symbol or you could miss out on the quarterly payday.
Current yield: 5.1%
Enstar Group Ltd. (ESGRO)
Enstar Group is unique in that is a conglomerate that acquires and manages smaller insurance and reinsurance companies, as well as discrete portfolios of insurance and reinsurance businesses in its "run-off" segment. Think of it almost like a kind of investment firm that picks and chooses the insurance policies it thinks will generate the best returns as opposed to more traditional investments in corporate equity or bonds. This structure allows Enstar to operate with economies of scale, and also to set things up in a way that delivers consistent cash flow back to the parent firm -- and to its shareholders through dividends.
Current yield: 6.5%
Another unique insurance company on this list, Fanhua is a Chinese company that is focused as an insurance brokerage -- a fancy way for sales. In other words, it distributes insurance products across a variety of areas including automobile, travel, disability income, home, life, individual health coverage and annuities. Unlike in the West, where these products are fairly well known, there is tremendous potential in an emerging market like China as a growing middle class creates more consumers of these products. And in a nation of 1.4 billion people, that's an incredibly rich market to tap into.
Current yield: 4.8%
New York-based Assurant is a global property insurance firm that provides risk management solutions for housing markets in North America, Latin America, Europe and Asia Pacific. The company mainly operates rental insurance, flood insurance and homeowner insurance arms, plus other businesses such as extended warrantees that cover electronics and home appliances. Formerly known as Fortis, Assurant went public and changed its name in 2004. But for those interested in its more recent history, shares are up more than 30% this year thanks to strong results -- with AIZ offering a dividend on top of that.
Current yield: 1.9%
Chubb Ltd. (CB)
Switzerland-based Chubb is a roughly $70 billion giant of the insurance industry, specializing in property and casualty insurance for businesses. This includes covering marine fleets, commercial properties and even specialized risk management contracts that for cybersecurity threats. There are numerous other business lines including crop and health insurance plus home and auto policies. The result is a truly diversified insurer with great scale and a low risk profile that you would expect from a Swiss financial firm. Shares have surged nearly 40% in 2019 thanks to the attractiveness of its solid business model, but the dividend is also a nice sweetener for income investors.
Current yield: 2%
Insurance stocks to buy for income:
-- Old Republic International Corp. (ORI)
-- Allstate Corp. (ALL)
-- American International Group (AIG)
-- Sun Life Financial (SLF)
-- Arch Capital Group (ACGLP)
-- Enstar Group Ltd. (ESGRO)
-- Fanhua (FANH)
-- Assurant (AIZ)
-- Chubb Ltd. (CB)
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