Please ensure Javascript is enabled for purposes of website accessibility

Will ACE Limited Raise Its Dividend in 2016?

By Dan Caplinger - Jan 24, 2016 at 1:01PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The insurance company's new merger gives it access to an even longer history of dividend excellence.

Image: ACE.

The insurance industry has produced some long-term success stories for shareholders, and some insurers have done a particularly good job of using dividends to share their success. ACE Limited (NYSE: CB) is one such insurer, having put together a 22-year track record of raising its dividends annually. Now that it has completed its merger with Chubb, ACE arguably has an even more impressive dividend pedigree given Chubb's status as a Dividend Aristocrat. Let's look more closely at ACE Limited to see whether investors should expect a dividend increase in 2016.

Dividend Stats on ACE Limited

Current Quarterly Dividend Per Share

$0.67

Current Yield

2.4%

Number of Consecutive Years With Dividend Increases

22 years*

Payout Ratio

33%

Last Increase

May 2015

Source: Yahoo! Finance. Last increase refers to ex-dividend date. * Using ACE's pre-merger dividend history.

How ACE became a great dividend stock
ACE Limited has had a remarkably consistent history of raising its dividends at a steady pace over time. During most of the 1990s and 2000s, investors could count on ACE to deliver annual dividend growth in a range of roughly 10% to 25%, and between 1994 and 2007, the company's dividend jumped more than eightfold.

After the financial crisis, ACE's dividend growth slowed down temporarily in response to tough conditions in the insurance industry. Bad loss experience stemming from some catastrophic events contributed to the pressure on ACE's earnings and dividends. But by 2012, ACE felt comfortable enough to give investors a big dividend increase of more than a third, and a 24% hike at the beginning of 2014 also helped to bring the company's payout into line with the industry. The result has been that ACE has doubled its dividend in just the past five years.

CB Dividend Chart

CB Dividend data by YCharts

As impressive as ACE Limited's dividend history is, the move it made to acquire Chubb promises to generate even more interest from investors. Chubb had a 33-year history of raising its annual dividend every year, and the stock was one of just a few dozen members of the prestigious Dividend Aristocrats list. The $29 billion deal announced last summer finally closed earlier this month, and the company will move forward using the Chubb brand. Yet ACE shareholders will be the ones left unaffected by the merger, and Chubb shareholders had to trade their shares in, receiving $62.93 in cash plus 0.6019 ACE shares for every Chubb share they owned.

Particularly important for dividend investors is the fact that ACE expects the transaction to add to its earnings per share and book value immediately. That opens the door to further dividend increases without necessarily having to undergo a waiting period while the two companies seek to integrate their operations. The announcement in July didn't make specific reference to dividends, but it did identify attractive opportunities to complement each other's business strengths and eventually restore faster growth to the overall operation.

When will ACE Limited raise its dividend?
What's unclear about the merger is what impact it will have on the timing of dividend increases. Former Chubb shareholders would have expected a dividend hike to take effect during the first quarter of the year, and they haven't had a boost since last March. By contrast, ACE has more frequently made its increases at midyear, and so given that ACE is the surviving corporate entity, there's an argument that investors should expect a hike in the summer.

Given both companies' track records, few investors expect any break in the streak of consecutive rising dividends in 2016. As long as the merger goes well, the question isn't whether a dividend increase will happen, but rather when shareholders will see their quarterly checks go up.

Dan Caplinger 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.