Source: Company

Cincinnati Financial Corporation (NASDAQ:CINF) is a pretty interesting property and casualty business that has delighted investors with a constant stream of dividends.

While other insurance companies consolidated and cut or stopped their cash flows to shareholders, Cincinnati Financial Corporation actually increased its dividend payout in the darkest hours of the financial services sector in 2008/2009.

Cincinnati Financial is a good example why investors should take a close look at second-league insurance companies with solid premium and dividend growth, but with much lower market capitalizations compared to high-profile companies like American International Group.

Speaking of a resilient insurance business, Cincinnati Financial looks back on a 46 year trading record since the company was founded in 1968 and, based on 2013 net written premiums, ranks among the 25 largest property and casualty insurance companies in the industry.

The insurance company currently commands a market capitalization of approximately $8 billion and has a solid record in increasing its premiums and its dividends.

1. Solid premium trend
A good thing to start when evaluating a property and casualty business, is its new written premium trend.


Source: Cincinnati Financial Annual Meeting of Shareholders April 26, 2014

New written premiums highlight that the insurance company is growing its core business by writing new policies and absorbing incremental insurance risk.

A trend of increasing new business written premiums, as displayed on the chart on the left-hand side, signals that the company has a competitive product offering that finds solid market acceptance.

Cincinnati Financial actually increased its new business written premiums by nearly 8% a year since 2009: A respectable performance.

Cincinnati Financial's premium trend certainly looks healthy and, ultimately, underscores its dividend growth, which has been quite extraordinary.

2. Distinguishing dividend performance
One has to give credit where credit is due: While many other insurance companies got hammered in 2008 and 2009 with many enterprises on the brink of failure and suspending their dividends, second-league property and insurance companies like Cincinnati Financial actually performed quite well.

The chart below depicts Cincinnati Financial's dividend record over the last ten years. Two things are worthy of particular attention here: 1. Dividends have been growing strongly in the upswing of the U.S. economy from 2004 to 2008 and 2. Dividends have been pretty stable since 2008 and actually have increased albeit at a low growth rate.


Source: Cincinnati Financial Annual Meeting of Shareholders April 26, 2014

Given Cincinnati Financial's pre-crisis dividend record, there is a high likelihood that the property and insurance company will present investors with accelerating dividend growth rates as the U.S. economy finds its way back to higher growth.

3. High dividend yield
Cincinnati Financial currently pays investors $0.44 per share quarterly which equates to an attractive annual forward dividend yield of 3.64%. Investors will very likely see substantial dividend hikes in the coming quarters.

Add to that, insurance sector earnings have not peaked just yet, which probably gives insurance companies like Cincinnati Financial a couple more years to run and increase both their equity valuation and dividend yield.

Investors assign premium multiple for quality dividend stream
If there is one thing investors love: It's dividends. And they love them even more when they trickle in reliably even when market conditions point to distress.

Cincinnati Financial's record does offer everything investors desire, which is also the reason why investors reward the insurance company with a premium to book value.


The Foolish Bottom Line
Cincinnati Financial is an interesting bet on robust dividend growth and a generally favorable operating environment for insurance firms going forward.

With a near 4% dividend yield, a record of increasing new written premiums and dividends, Cincinnati Financial is an interesting alternative to other, high-profile insurance businesses.

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Kingkarn Amjaroen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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