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ACE to Boost Shareholders' Return

Zacks Equity Research

In a concerted effort to enhance shareholders' value, ACE Limited (ACE) intends to boost its dividend. The board of directors will propose a 4% increase in the quarterly dividend at the extraordinary general meeting scheduled on May 16, 2013.

ACE Limited, if approved, will pay a quarterly dividend of 51 cents ($2.04 on an annualized basis), up from 49 cents ($1.96 on an annualized basis). Previously, in May 2012, the board announced a 4.25% increase in the quarterly dividend from 47 cents ($1.88 on an annualized basis).

ACE has maintained a consistent track record of paying quarterly dividends and the current dividend is not an exception. The company also has a record of increasing dividend each year. Its dividend yield is 2.30%, much above the industry yield of 1.63% and that of its peer RLI Corp.'s (RLI) yield of 1.86%.

ACE appears to have a strong capital and liquidity position, helping it increase the quarterly dividend. The cash balance of ACE Limited at 2012-end totaled $615 million, while cash from operation approximated $4 billion.

A few property and casualty insurers like Chubb Corp. (CB) and XL Group plc (XL), among others, have also hiked their dividends recently. While the board of directors of Chubb approved a 7.3% dividend increase on Feb 28, the board of directors of XL Group approved a 27% dividend hike on Feb 22.

ACE Limited reported robust fourth-quarter results with operating income coming in at $1.43 per share, ahead of the Zacks Consensus Estimate by 14 cents. Earnings, however, declined 25% year over year, as the reported quarter was hugely affected by cat losses incurred due to Superstorm Sandy.

Nevertheless, prudent underwriting practices, international presence, diversified product offering and a sturdy balance sheet managed to limit the adverse effect. It continues to expand its international footprint with acquisitions in Indonesia and Mexico. The company also remains focused on enhancing its earnings, ROE and book value per share.

ACE Limited currently carries a Zacks Rank #3 (Hold).

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