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Hanover to Distribute More Profit

Zacks Equity Research

The board of directors of The Hanover Insurance Group Inc. (THG) has approved a 12.1% increase in its quarterly dividend. This property and casualty insurer will now pay a quarterly cash dividend of 37 cents per share, up from 33 cents paid on Sep 27, 2013. The newly increased dividend will be paid on Dec 27, 2013 to shareholders of record as of Dec 16, 2013.

Shares of the company gained 1.2% during the trading hours to close at $60.99 on Dec 6, 2013.

Hanover has been increasing its dividend over the last 15 years. It has increased its dividend at a 4-year CAGR of 10.3%. Its previous dividend hike was effectuated in December last year, wherein the board had approved a 10% increase, raising the quarterly dividend to 33 cents from 30 cents.

The current dividend hike is primarily supported by Hanover’s strong operational performance across most of its business lines, and its improved underwriting results. A healthy cash balance also aids the increase in dividend. Hanover exited the third quarter of 2013 with cash and cash equivalents of $602.2 million, up 6.6% from the 2012-end level. Based on its 44.6 million shares outstanding as of Sep 30, 2013, Hanover will have to dish out nearly $16.5 million as quarterly dividend.

Based on the closing share price of $60.99 on Dec 6, the increased dividend implies a yield of 2.4%. The current dividend yield of Hanover is better than the industry yield of 1.9% and is in line with the sector yield.

No earnings momentum has been witnessed over the last 7 days. As a result, the Zacks Consensus Estimate for 2013 and 2014 remained at $4.79 and $4.67 per share, respectively. However, we expect the news of this dividend increase to encourage analysts to eventually pull up their estimates. Hanover presently carries a Zacks Rank #1 (Strong Buy).

Several insurers are treading the same path as Hanover. They foresee dividend hikes as strategies to retain investor confidence as well as attract new investors. In November, property and casualty insurer Montpelier Re Holdings Ltd. (MRH) approved a 9% increase in its quarterly dividend to 12.50 cents per share, while the board of directors of Everest Re Group Ltd. (RE) increased its quarterly dividend by 56% to 75 cents per share. In October, HCI Group Inc. (HCI) increased its dividend by 22.2% to 27.50 cents per share.

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