American Financial Group’s AFG board of directors approved a special cash dividend of $2.00 per share. Shareholders of record as of Mar 15 will receive the special dividend on Mar 22.
This special dividend is in addition to the insurer’s quarterly dividend of 56 cents per share that was paid on Jan 25, 2022. This Zacks Rank #2 (Buy) property and casualty insurer estimates spending $170 million for the special dividend, which is supported by its strong financial position.
Since 2012, American Financial has been paying out special dividends. With the latest approval, the property and casualty insurer will be paying out 18 special dividends in 11 years.
In October 2021, AFG raised its quarterly dividend by 12% in its concerted effort to enhance shareholder value, which marked the 17th straight year of dividend hike. Historically, the insurer boasts a consistent increase in dividends with the metric witnessing a six-year CAGR (2017-2022) of 10.4%. Its dividend yield of 1.7% betters the industry average of 0.3%, making the stock an attractive pick for yield-seeking investors.
Besides the special cash dividend and regular dividend hike, the property and casualty insurer remains committed to returning excess cash to shareholders through share repurchases.
In 2021, the insurer paid $2.4 billion in dividends, including $2.2 billion in special dividends and $176 million in quarterly dividends and made share repurchases of $319 million.
American Financial has traditionally maintained moderate adjusted financial leverage around 20%, with a good cash flow and interest coverage ratio. As of Dec 31, 2021, excess capital was about $2.1 billion, which includes parent company cash and investments of nearly $1.9 billion. The insurer scores strongly with credit rating agencies.
The excess capital of AFG provides the financial flexibility to make opportunistic repurchases, pay additional special dividends, and grow specialty property and casualty business organically and through acquisitions and start-ups.
AFG estimates that by the end of 2022, nearly $750 million of excess capital can be used for share repurchases and special dividends.
In 2021, core operating return on equity improved 940 bps year over year to 18.6%. The robust operating profitability at the P&C segment, stellar investment performance and effective capital management should continue to support shareholders’ return.
Shares of American Financial have rallied 19% in the past year, outperforming the industry’s growth of 11.8%. Superior underwriting discipline and sound capital structure should help it retain momentum.
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Given the solid capital level of the insurance industry and improving operating backdrop favoring strong operational performance, insurers like Aon plc AON, The Allstate Corporation ALL and Chubb Limited CB have resorted to effective capital deployment to enhance shareholders’ value in February 2022.
While Aon hiked its dividend by 10% and approved a new $7.5-billion share buyback program, Allstate’s board approved a 4.9% hike in its annual dividend. Chubb’s board proposed a dividend hike of 3.7%.
Aon’s current dividend yield is 0.7%. A robust liquidity standing backed by a strong balance sheet and solid cash flows have enabled Aon to support not only growth initiatives such as buyouts and collaborations but have also paved the way for accelerated and prudent capital deployment measures.
Allstate’s 2.8% dividend yield betters the industry average of 0.3%, making the stock an attractive pick for yield-seeking investors. Allstate’s robust balance sheet supports effective capital deployment. Apart from financial strength, the deployable capital generated from the insurer’s divestiture of life and annuity businesses closed in November 2021 enabled Allstate to pursue such robust capital deployment moves.
Chubb Limited’s dividend yield of 1.6% betters the industry average of 0.3%. Chubb has maintained a strong balance sheet and financial flexibility, including consistent cash flow generation, for the past many years. The insurer’s cash flow has been increasing over the years. This has paved the way for prudent capital deployment measures.
Shares of Aon, The Allstate and Chubb have gained 27.2%, 7.7% and 19.1%, respectively, in a year’s time.
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