In an effort to distribute more profit among shareholders, the board of directors of HCI Group (HCI) increased its dividend by 22.2%. The company will now pay a quarterly dividend of 27.50 cents per share, up from 22.50 cents paid on Sep 23, 2013. The market also reacted positively to the news. Share price inched up 1.1% to close at $42.11 on Friday.
The newly increased dividend will be paid on Dec 20, 2013 to the shareholders of record as of Nov 15, 2013. Based on the closing share price of $42.11, the increased dividend implies a yield of 2.6%. The current dividend yield of the company is better than that of other property and casualty insurers like Allied World Assurance (AWH), The Chubb Corp. (CB) and The Hanover Insurance Group Inc. (THG), with yields of 1.9%, 1.9% and 2.3% respectively. It is also ahead of the industry average of 1.9%.
The dividend hike was primarily supported by HCI Group’s strong balance sheet and its ability to generate healthy cash flow, which in turn is owing to its continued solid operational performance. Cash balance at the end of the second quarter stood at nearly $296.8 million (up nearly 29% from Dec 31, 2012) while cash from operations in the first half totaled $42.9 million (up 77% year over year).
HCI Group has remained committed toward enhancing its shareholder value. In Oct 2013, the board had approved a 12.5% increase, raising the dividend to 22.5 cents from 20 cents. The board had also approved a special dividend of 10 cents.
There was no earnings momentum over the last 30 days. With the news of increase in dividend, we expect analysts to raise their estimates exerting upward pressure on the Zacks Rank. HCI Group presently carries a Zacks Rank #2 (Buy). The property and casualty insurer delivered positive earnings surprises for four straight quarters with an average beat of 38.1%.
We wait to see whether the momentum continues when HCI Group reports its third-quarter 2013 results on Nov 5. The Zacks Consensus estimate for third quarter is currently pegged at 63 cents, translating to nearly 135% year over year improvement.