In its concerted effort to return more value to shareholders, the board of directors of AXIS Capital Holdings Limited (AXS) approved a 4% increase in its quarterly dividend. The company will now pay a dividend of 24 cents per share, up from 23 cents paid on October 17, 2011. Shareholders of record as on December 30, 2011 will receive the dividend on January 17, 2012.
The recent dividend increase marks the company’s eight consecutive annual increase. AXIS Capital’s annualized dividend yield of 2.97% is higher than its nearest peer ACE Limited’s (ACE) with the latter’s annualized dividend yield of 2.74%.
The dividend hike was primarily supported by AXIS Capital’s strong balance sheet and its ability to generate healthy cash flow. AXIS Capital ended the quarter with cash and equivalents of $935.2 million, up 14.9% form 2010 end level. Year to date, cash from operations were healthy at $991.6 million, up 14.4% year over year.
Despite the announcement of dividend increase there was no spurt in the share price. It is likely possible that the stock had factored in the expectation of the dividend increase. Last year, on December 9, AXIS Capital had authorized a dividend hike of 9.5%. The share price of AXIS Capital declined 1% to close at $30.94 as on Thursday.
Also, there was no earnings momentum over the last 7 days. We believe the news to share more profits with shareholders might encourage analysts to pull their estimates upward. The Zacks Consensus Estimate for fourth-quarter 2011 is $1.13 per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, loss of 59 cents and earnings of $3.99 per share.
We believe conservative underwriting practices, solid capital position and positive ratings from ratings agencies as well as share buyback programs and dividend hikes strongly position AXIS Capital going forward. Also, the company’s substantial investment in the underwriting platform will help widen its scale of operations.
However, the company remains heavily exposed to losses resulting from natural disasters, man-made catastrophes and other catastrophic events.
We retain our long term Neutral recommendation on AXIS Capital Holdings Limited. The quantitative Zacks #3 Rank (short-term Hold rating) on the stock indicates no clear directional pressure on the shares over the near term.
Headquartered in Pembroke, Bermuda, AXIS Capital is a global provider of specialty lines of insurance and treaty reinsurance.
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