Property and casualty insurer, American Financial Group, Inc. ( AFG) has announced that it will hike its annual dividend payout by 13.6% to $1.00 per share.
This affirms the insurer’s commitment to pump up its shareholders’ returns. Notably, American Financial has been increasing its dividend consecutively for nine years.
Following this hike, American Financial's five-year compounded annual growth rate in dividend is approximately 12%.
The insurer’s 5-year average dividend yield stands at 2.4%, which is higher than the industry average yield of 2%.
Shareholders will have their pockets filled with this meatier dividend beginning Oct 2014.
The dividend hike is supported by American Financial's strong balance sheet with moderate leverage and its ability to generate significant cash flows.
This announcement does not come as a surprise since the company hinted in the last concluded quarter that with $740 million of excess capital (including parent company cash of approximately $240 million) it would make opportunistic share repurchases and return capital to shareholders through dividends.
The company also commented that it would continue to invest excess capital for healthy, profitable organic growth through acquisitions.
During the second quarter, the company reported operating earnings per share of $1.07, beating the Zacks Consensus Estimate of 95 cents by 12.6%. On a year-over-year basis, earnings increased 11.5%, buoyed by higher contribution from specialty property and casualty group as well as earnings strength in the annuity segment.
American Financial currently carries a Zacks Rank #3 (Hold). We believe that the announcement of a dividend increase will augur well for the company and help boost shareholders’ confidence.