3 Convincing Reasons Why You Should Consider Cincinnati Financial Corporation

Cincinnati Financial is an interesting P&C insurance bet for investors who desire a resilient insurance investment with a fantastic dividend record and a high yield.

Jul 16, 2014 at 2:42PM

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.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information