Why AIG Won't Raise Its Dividend In 2014

This has been a banner year for American International Group (NYSE: AIG  ) , marking its first fiscal year following the end of governmental ownership. For investors, one of the key developments for the insurance giant was its reinstatement of a quarterly dividend following a great second quarter. But as we enter a new year, now is not the time for AIG investors to expect a higher dividend payment from the company.

Too much, too soon
As I mentioned, AIG's $0.10 quarterly dividend was just reinstated following the second quarter. And though the company can appreciate the patience of investors who waited five years for that event, increasing the payout could cut into some of the other priorities for 2014. Starting the newly reinstated dividend at $0.10 per quarter already provided half of the payout investors received before the payments were halted in 2008.

Not keeping up with the Joneses
Reinstating its dividend was the first step for AIG to rejoin the ranks of its insurance compatriots popular with income investors. But if you compare the dividends and yields, AIG is clearly staying toward the rear of the pack:

Company Annualized Dividend Forward Yield Payout Ratio
AIG $0.40 0.80% 4%
Allstate (NYSE: ALL  ) $1.00 1.90% 25%
Hartford Financial (NYSE: HIG  ) $0.60 1.70% N/M
MetLife (NYSE: MET  ) $1.10 2.10% 67%

Source: Yahoo! Finance.

Though the 4% payout ratio for AIG is leagues behind its closest competitors, there is one rival that AIG may be mirroring -- Berkshire Hathaway (NYSE: BRK-B  ) .

Warren Buffett is known for his resistance to paying out a dividend to Berkshire investors, which puzzles even his friends. But to use a quote from my fellow Fool Patrick Morris' recent article, Buffett states that "a company's management should first examine reinvestment possibilities offered by its current business -- projects to become more efficient, expand territorially, extend and improve product lines, or to otherwise widen the economic moat separating the company from its competitors."

Better uses
Not that returning capital to its investors isn't a good use of its $12.7 billion in cash, but evaluating its options for further expansion and new opportunities is probably a better use of its resources. So far, the company has used only a small portion of its $1 billion authorization for share repurchases, which would also return value to shareholders. And though the company has already doubled down on its initial investment in a new Chinese joint venture with the PICC Group, the projected growth in China and the impressive returns from the investment so far make it another viable option for the deployment of AIG's cash.

Patience is a virtue
The new year is always a time for reflection and renewal. And though it would be nice for every company to announce a continually rising dividend, sometimes the resolutions and priorities take resources in another direction. For long-term investors, the fact that AIG may not be increasing its payouts shouldn't be a deterrent for further investment or holding your position. Though the short-term outlook for a higher cash reward isn't great, you can be sure that the insurance behemoth will eventually reward its patient investors once more.

Not everyone needs a dividend
Though his approach may be more off-putting to income investors than others, there's lost to be learned from the Oracle -- no matter what approach to investing you favor. Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.


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