American Financial Treats Investors with One-Time Dividend

Share price of the property and casualty insurer, American Financial Group Inc. (AFG) gained 1% to close at $61.39 in the last trading session after it announced a special dividend of $1.00 on Dec 2. This gesture is supported by strong third-quarter earnings which prompted management to reward the company’s investors.

All shareholders of the company on record as of Dec 15, 2014 will get this special dividend on Dec 24.

Many a times, a special dividend signals that the company has nothing better to do with its available cash. For example, there may be no other profitable opportunities to grow business, and that is why the cash has been piling up. But this is not the case with American Financial. The company continually evaluates opportunities to grow its businesses organically, expand to new niche markets that meet strategic objectives or acquire businesses as bolt-on to the existing businesses.

The announcement of this special dividend rather reflects American Financial’s strong financial position and consequently cements our confidence in its financial future. The company’s excess capital stood at approximately $920 million at Sep 30, 2014. This is $180 million higher than the last quarter’s figure of $740 million.

This is the third special dividend payment made by the company. The company first paid a one-time dividend in Dec 2012, then one year later in Dec 2013.

During Aug 2014, the company raised its annual dividend by 14%.

The company also expanded its share buyback authorization to 5 million shares.

Last month, another insurer RLI Corp. (RLI) announced that it will pay a special dividend of $3 per share.

American Financial presently carries a Zacks Rank #3 (Hold). Better-ranked players include Arch Capital Group Ltd. (ACGL) and AmTrust Financial Services, Inc. (AFSI). Both these stocks sport a Zacks Rank #1(Strong Buy).