Insurance company Infinity Property and Casualty (NASDAQ:IPCC) fills an interesting niche in the auto insurance industry. It specifically seeks out "non-standard" (read: higher risk) clients among urban and Hispanic consumers in seven key states. That consumer targeting makes it almost the polar opposite of Berkshire Hathaway's (NYSE:BRK-A)(NYSE:BRK-B) GEICO, which focuses on lower-risk clients and writes policies nationally.

By targeting higher-risk customers that bigger players like GEICO largely ignores, Infinity Property and Casualty has been able to profit. In addition, it has turned a decent portion of that profit into a growing stream of dividends for its shareholders, a rarity among auto insurers in recent years. That growing dividend was a key reason -- but not the only reason -- it became a recent selection for the real-money Inflation-Protected Income Growth portfolio.

Is that a risky strategy?
Of course, there's a downside to Infinity Property and Casualty's business model. Insurance is a competitive business where the key barriers to entry are capital and risk assessment, both of which are available elsewhere. Nothing brings out competition like profits, and other insurers may decide they want a slice of the market Infinity has been able to profitably insure.

Should the market for its customers become more competitive, Infinity Property and Casualty's dividend may be at risk. For instance, as its parent company Berkshire Hathaway pays no dividends, GEICO can afford to invest more heavily should it choose to compete for Infinity's higher risk clients.

Indeed, in part because of that risk from an ever-shifting competitive environment, fellow auto insurer Progressive (NYSE:PGR) pays a variable dividend based on its operating profits. That variable dividend policy frees it from the expectation of annual increases, and indeed, Progressive's dividend has bounced around substantially in recent years.

Similarly, Allstate (NYSE:ALL), another large auto insurer, had a 14-year history of regularly increasing its dividend until the recent financial crisis. Once Allstate started losing money in the crisis, its dividend got cut. In Allstate's case, losses in its investment portfolio -- such as mortgage backed securities -- contributed to its woes, but regardless of the source of its troubles, when the cash dried up, the dividend got cut.

So why own its stock?
Because of those risks, the presence and past growth of a dividend is not a sufficient reason in and of itself to own a company's stock. In the brief video below, iPIG portfolio manager Chuck Saletta reviews Infinity Property and Casualty and explains why he wants to continue holding this stock.

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