Home and auto insurer, The Allstate Corp.’s (ALL) robust capital plan received the deserved applause as the share price went north by 3.2% to $53.47 per share on Feb 20.
Basking after solid fourth-quarter results and a smooth exit from 2013, the board of Allstate sanctioned a new share repurchase of stock worth $2.5 billion, the largest one since 2006. The buyback is projected to be executed in the next one and a half years.
After buying back shares for $1.84 billion in 2013 (significantly up from $910 million in 2012), the company held about $139 million worth of shares at 2013-end, under its previous $1.0 billion authorization that was authorized in Feb 2013, culminated both before expiry.
Concurrently, Allstate also hiked its regular quarterly dividend by 12% to 28 cents per share from the prior 25 cents, now shelling out $1.12 per share annually. The raised quarterly dividend will be paid on Apr 1, 2014 to shareholders of record as on Mar 3.
At Thursday’s closing price, the company’s dividend yield stands at 2.09%, up from prior 1.89%, thereby increasing shareholder return. The latest hike is backed by dividend increases of 13.6% and 4.8% in Feb 2013 and Feb 2012, respectively.
Prudent capital management remains Allstate’s forte. The accretive impact of accelerated share repurchases and dividend hikes also enhances book value and earnings on a per share basis. Moreover, the inflated capital deployment reflects the company’s efficient operational synergies, yield expansion and aggressive risk management.
Armed with deployable asset of $2.56 billion and strong operating cash flow of $4.24 billion at 2013-end, Allstate boasts of returning wealth worth $2.5 billion to its shareholders via share buybacks and dividends in all of 2013 and Jan 2014.
CAT Loss: A Dampener
The catastrophe (CAT) loss estimate, for Jan 2014, issued by management may add some jitters to the first-quarter 2014 results. Allstate expects losses of over $277 million ($180 million pre-tax). The loss primarily includes the damages created by the recent winter freeze in the north-east of the US, among the six weather-related events, totaling $271 million. The remaining $6 million of loss is related to unfavorable reserve re-estimates from prior months.
The worst winters with record low-temperatures have cost the insurance industry CAT loss over $1 billion and higher claims, also affecting Allstate. In order to generate greater transparency, since 2012, Allstate started disclosing its quarterly and monthly CAT loss estimates if the amount exceeds $150 million for any month.
While Allstate carries a Zacks Rank #3 (Hold), other top-ranked insurers include RLI Corp. (RLI), White Mountains Insurance Group Ltd. (WTM) and OneBeacon Insurance Group Ltd. (OB), each sporting a Zacks Rank #1 (Strong Buy).