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American Financial Group’s AFG board of directors approved a special cash dividend of $2.00 per share. The company has been paying out special dividends since 2012.
This property and casualty insurer estimates spending $170 million for the special dividend, which is backed by its strong financial position. With the latest approval, the company will be paying out 14 special dividends in 10 years. Shareholders of record as of Jul 26 will receive the special dividend on Aug 2. Per Co-CEOs S. Craig Lindner and Carl H. Lindner III, the payment of this special is a key component of the company’s capital management strategy.
This latest approval marks two special dividends approved by the board so far this year. In June 2021, the company paid a special, one-time cash dividend of $1.2 billion or $14.00 per share, concurrent with the sale of its Annuity business.
Besides dividend payouts, American Financial opportunistically buybacks share. In the second quarter of 2021, the company bought back shares worth $114 million, returning $1.58 billion in capital in the first half of 2021.
American Financial, a niche player in the P&C and annuity markets, has traditionally maintained moderate adjusted financial leverage with good cash flow and significant excess capital. The robust operating profitability at the P&C segment, a stellar investment performance and an effective capital management support effective shareholders’ return. Apart from paying out special dividends and buying back shares, the company has successfully increased its dividends in each of the last 14 years. Its dividend yield of 1.6% betters the industry average of 0.4%.
Exiting underperforming Annuity business to intensify focus on its Specialty P&C segment, consistent price increase in the P&C business, better industry fundamentals, a high renewal ratio, favorable combined ratio and strong capital management are likely to help the company in sustaining the streak. The divestiture of its Annuity business is expected to significantly enhance American Financial’s cash and excess capital.
Shares of American Financial have rallied 43.3% year to date, compared with the industry’s growth of 16.3%. The company’s superior underwriting discipline and sound capital structure should help it retain the momentum.
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The stock currently carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other insurers, that have engaged in enhancing shareholders’ value include Unum Group UNM, Chubb Limited CB and RLI Corp. RLI, which have hiked quarterly dividend by 5.3%, 2.6 and 12%, respectively.
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