Property and casualty insurer Cincinnati Financial Corp. (CINF) has announced a 0.25 cent hike in quarterly dividend to 40.25 cents per share payable on October 17, 2011, to shareholders of record as of September 21, 2011.
On the basis of increased dividend of 40.25 cents, the stock of Cincinnati Financial has an attractive dividend yield of approximately 6.12%. Management has increased dividend every year for the past 50 years, with the average annual growth of 7% for the past five years.
The continuous dividend payment is supported by Cincinnati’s strong capital and continuous cash flow generation. The company had over $1 billion in cash and marketable securities as of June 2011 end. It targets a debt-to-total-capital ratio of less than 20%. At year end 2010, this ratio was 14.3% as against 15.0% at the 2009 end.
Cincinnati’s board of directors is committed to rewarding shareholders directly through cash dividends and by authorizing share repurchases. We respect the company for its efforts to maintain the trend even after an economic beating, thereby preserving shareholders’ income. In its latest quarterly filing, the company announced its intention of increasing dividends in future years as well.
Cincinnati has been facing a top-line compression over the past five years mainly due to soft market pricing. The compound annual growth rate of net written premiums has been negative 0.7% for the past five years. However, during the second quarter of 2011, the company witnessed a broad-based premium growth in all three property casualty segments. It seems that the pricing and improvement initiatives are gaining traction.
In the second quarter, Cincinnati incurred huge catastrophe losses and reported an operating loss of 57 cents per share, which was, however, narrower than the Zacks Consensus Estimate of a loss of 64 cents per share.
Though Cincinnati’s Personal Lines business is gradually recovering with an improvement in new business levels and strong retention levels, as well as rate increases, its Commercial Lines business is still experiencing very strong competition in the market, along with pricing decline in low single digits and reduced insured exposure levels that include negative effects on audit premium. We expect the segment to remain somewhat weak until the fragile economy strengthens significantly.
Cincinnati’s Life Insurance earned premiums grew in the second quarter as did profit. The Life Insurance segment remains an important contributor to operating results and helps smooth out the variable results from the company’s property and casualty operations.
Thus, we believe in the near term, the stock will be helped by dividend increases and stock buyback activities, with actual business growth remaining subdued.
CINCINNATI FINL (CINF): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment