A while back I wrote about investing in the ‘boring’ HVAC industry. Investing in boring industries rarely gives your portfolio a “shot in the arm” in terms of dramatic capital appreciation but what it can do is provide stability and predictability in terms of tempered growth and a potential reliable source of growing dividends for decades on end.
Another industry that I like lacking general sex appeal, but I think belongs in every long term dividend growth portfolio, is the property and casualty insurance space. Of course, there’s not much that’s exciting or innovative in this sector, rather what you get is solid, long term, steady growth coupled with growing dividends which is what every long term investor should be looking for. With that being said let’s take a look at some of the names in the property and casualty insurance space.
First up, is a name that is quite familiar among long term dividend investors, The Travelers Companies, Inc. (TRV). Founded in 1853, so you already know this company has seen every economic cycle out there, TRV offers commercial and personal property, and casualty insurance products and services to businesses, government units, associations, and individuals worldwide. With a current yield of 2.2% and a trailing twelve month payout ratio of just 25.5%, TRV has the cash flow to continue paying and raising its dividend for the foreseeable future. If that doesn’t give you enough reason to consider this stock perhaps its ten year annualized dividend growth rate of 10.0% might. With a current PE of 11.8 the stock is currently trading at its five year average PE. In late 2016 the stock was trading around $105 which gave it a much more attractive price, value and yield. While a solid name in almost every sense the price seems to have run away a bit.
Next, is a lesser known company in the P&C space, AXIS Capital Holdings Limited (AXS). AXS offers up many different types of insurance products covering everything from property insurance for commercial buildings and residential premises to marine insurance covering offshore energy, cargo, fine art and even medical malpractice to name a few. AXS has a current yield of 2.2% with a very low payout ratio of just 28.1% leaving a lot of room for future payments and even growth like with TRV. Along with this safe yield, AXS also has an attractive ten year annualized dividend growth rate of 8.8%. Not too bad. With a current PE of 13.5 the stock is trading at a much lower multiple compared to its five year average. While AXS does not have the lengthy history of TRV it certainly offers up some interesting value, growth and yield.
Our next exciting stock, Endurance Specialty Holdings Ltd. (ENH) offers up the same profitable underwriting policies as the companies mentioned above. While not offering investors the juiciest of current yields coming in at just 1.6% it does sport a very safe dividend with a low payout ratio of just 30.8%. As with the other stocks mentioned, ENH offers any dividend growth investor a very safe yield. Long term dividend growth has been decent with a ten year annualized dividend growth rate of 4.3%. Nothing too stellar but it’s still growth nonetheless. ENH has a current PE of 18.9 as its stock rocketed higher several months ago after Japan’s Sompo agreed to buy ENH for $6.3 billion. Dividends are continuing to be paid out regularly by the ENH board as the company just declared a quarterly dividend of $0.38 towards the end of February.
Finally, in this round up we have an insurer that’s very familiar to most, at least here in the U.S., The Progressive Corporation (PGR). Founded in 1937, PGR offers both personal and commercial property-casualty insurance across many different areas. PGR currently offers a 1.7% yield with a 50.5% payout ratio, which seems to be the general theme of insurers offering up safe dividend payouts. Buy for the modest current yield and the prospect of future raises. Speaking of raises, PGR has a very impressive ten year annualized dividend growth rate of 32.0%. That’s an accelerated dividend growth rate by any measure. With a current PE of 22.4, PGR is trading well above its five year average as its stock climbed significantly since late 2016. Perhaps waiting for a pullback in share price might be prudent at this time.
Of course, there are many, many names in the property and casualty insurance space. Perhaps, I’ll highlight another group of stocks in this space in the future. I think there’s good reason this industry has so many players, it’s very profitable. As evidenced by the four stocks profiled above, the P&C insurance space offers up very some safe yield for those looking to add a stable dividend payer to their portfolio.
What do you think about the P&C industry? Do you own any insurance stocks in your own portfolio? Please let me know below.
Disclosure: Long NONE
36 thoughts on “Insuring Your Portfolio With Insurance Stocks”
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Thanks for sharing this insurance ETF with me. I guess there is an ETF for everything these days and it’s an easy way to gain exposure to multiple names in this industry. Thank you for commenting.
I love posts like this. You’re right, it isn’t about the appeal. It’s about the boring industries that pay safe and growing dividends for the long term. With the market reaching new highs daily, it’s becoming harder to find companies at good value. Nice to see what else is out there and can add to the watch list. Thanks for sharing.
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Usually, it’s the boring industries that have the longest staying power as they often serve a basic human need that is not readily replaced. That’s one of the reasons I like the consumer staples so much. There are still some decent value plays out there. They are just harder to come by but at least some of these insurance plays might make sense. As always, I appreciate your comment.
Good article. I own TRV and AXS and am happy with both. I recommend valuing insurance companies based on price to book value rather than P/E though. These are ultimately financial companies so their net asset base is what matters. P/E is subject to manipulation via increasing leverage. Price to book clear up such confusion.
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I have been watching TRV for a while. Should have added some when it was nearing $100 not that long ago. I believe your are the first person among our peers online that owns AXS. You don’t really see that name in many portfolios. Thanks for sharing your take on how you value companies as well. Thank you for stopping by and commenting.
I agree with the good post sentiment but would point out the lines are blurry when it comes to P&C versus all types of insurance. Metlife offers auto, AIG life and auto and Berkshire all of the above. With less distinct lines, in addition P/B as FV mentions, I would include AUM as well. Long AIG, MET, TRV (as well as others) as another benefit (which Warren also likes) is the float.
It’s true that some insurance companies are not pure play P&C entities so if that’s what you are looking for specifically you have to make sure to read the company profile thoroughly. Looks like you own quite a few names in this industry. I think I need to add TRV one day as I only hold AFL and CB. Thank you for sharing your thoughts.
Insurance is one area that is lacking in my portfolio. I had recently looked into several: TRV, MET, and AFLC but I ended up feeling that they were a bit overvalued right now. Given a nice dip or correction and I would love to add some insurance stocks to my portfolio. Great article DH. Thanks for sharing.
Also I would like to point out that I am aware that the companies I were looking at specialise in different areas within the insurance industries.
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AFL is my largest holding in my portfolio if that should tell you anything. Like you, I’m also considering TRV going forward. There are quite a few solid names in this industry which just bears testament to its long term resilience during all economic conditions. Glad you enjoyed this post. As I mentioned, I may do another round up and highlight several other names in the same space. Thank you for commenting.
Intresting post,I don’t own any p and c insurance companies just manulife financial.
It’s always great to read to ignore the yield. I want to buy some cnr but havent pulled the trigger because of the low yield and high price atm. Instead I’m looking at higher yield companies. I should just buy it’s one I could hold for a long time
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I think every portfolio has room for higher yielding lower growth plays along with lower yielding fast growth. I guess it all depends on what you are looking from from your portfolio. It can be tempting to chase yield but just be careful. Thanks for sharing your thoughts as well as your potential buy in CNR.
Love the insurance business and with WB touting the power of a good insurance business I have one of the best investors of all time on my side. I really want to add some P&C insurers to my portfolio but the valuations for many, or at least the bigger ones, seem stretched. Of course what companies valuations don’t seem stretched these days? I’m thinking TRV would be a good fit eventually and maybe branch out into some of the other insurers as well.
One could make the case that it was the insurance industry that made WB who he is today. It’s really a great business model when you think about it. Collect money every month, really manage your payouts carefully and use the float to collect interest, invest or whatever. Like you, I am also thinking of TRV. It’s on my watch list and was a great buy not that long ago when it was closer to $100. For now, I have my AFL and CB but wouldn’t mind another name in my portfolio. Thank you for stopping by and commenting.
insurances are indeed a stable sector. I personally have ORI and Munich Re in my portfolio.
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Investing in stable industries always enables one to sleep well at night. For now, I just own CB and AFL in the insurance space but have TRV on my watch list. I should have picked up some ORI too when it was in the teens not that long ago. What a miss on my part. Thanks for sharing your holdings and thoughts.
I am a big fan of insurance company stocks. There are different types of insurers but one thing they all have in common is that they generally make a lot of money. I only have to look at how I view paying for insurance to realize that it is cash cow industry. I have paid so much money to them over the years and have received little other than peace of mind. Currently I own MET, CINF. & ORI. I love all three and they have done very well for me. The dividends and the year over year gains keep me coming back for more. Good stuff, thanks for sharing !
Brian recently posted…February Dividends 2017
There’s no doubt that the insurance game is a huge cash cow. Of course, that’s probably why Warren Buffett digs the industry so much. I don’t even want to think about all the dollars I have forked over all these years from auto to medical and other insurance policies I have in place. Of the three insurance stocks you hold I have looked at ORI. When it went down into the mid-teens not long ago I should have picked some up. Oh well… I’ll wait for another buying opportunity there. As always, I appreciate your comment.
Great article! Of all your work, the ones where you talk about different sectors and industries are my favorite.
And as for your claim that the insurance industry has no sex appeal, I’m sure there’s at least one porn out there where the sexy insurance agent visits the home of a lonely guy to do an “appraisal”. So never underestimate any industry’s sex appeal.
Any reason you prefer property insurance over other types such as life, health, and auto (which Progressive is most known for)? Anything you particularly like about that specific type of insurance?
ARB–Angry Retail Banker
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Glad you enjoyed this round up. It’s always fun to highlight stocks from different industries which could be potential holdings for a long term dividend growth portfolio. To be clear, I do not have a specific preference for property and casualty insurers. It’s just a sub-category I chose to highlight with this post. The reality though is that most insurers are hybrids and not pure plays offering different types of policies and coverage. On a side note, AFL is my single largest holding in my portfolio which should tell you something. I also hold CB and have TRV on my watch list. Thank you for stopping by and commenting.
Insurance for your portfolio with owning insurance isn’t a bad thing at all. I own Aflac, and other family members have traveler’s etc.. Also – very strong div growth history and is a necessity in the states – health, auto, house, renters, corporate, etc.. the list goes on. Great thought and I agree – buying insurance for insurance in your portfolio is a great idea.
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The insurance industry is one that rarely makes the headlines, especially when you have TSLA or SNAP stealing most of the thunder from these “boring” businesses. Of course, boring usually equates to longevity and steady growth if managed properly. Happy to be a fellow AFL shareholder with you. I mentioned in other comments that it is my single largest holding. Thank you for commenting.
All really good companies and if insurance is good enough for Warren Buffett, im not in a position to question. In addition to the companies you mention above – im a big fan of Aflac. A great company with room to grow beyond japan
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As you said, “good enough for Warren Buffett,” good enough for me. There’s a good reason he favors the insurance industry and one could make the case that it was the insurance industry that made WB who he is today. There are many interesting plays in the space from the well known companies to the lesser known, but still solid plays, out there. I have held AFL in my account since 2007 and plan to keep that stock for the foreseeable future. I’m also looking at TRV potentially as well. Thank you for stopping by and commenting.
Interesting…I haven’t given insurance much thought yet, I don’t even have them on my want list yet. I have been concentrating lately on Utes, Food, and Healthcare. I have a purchase coming up in the next day or so and have been thinking about SRE, HRL, or ABT. Since we are about to move to SRE’s coverage area, I think I’m leaning heavier that way. I see that you recently picked up D and SO…take a look at NEE and SRE if you would like to geographically diversify.
Thanks for the insurance idea…I’ll be adding AFL and TRV to my watch list.
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I added to my utilities last month with SO and D being bought. I have looked at NEE in the past but never SRE. Thanks for bringing those two names to my attention again. In the staples, I too am looking at HRL. Just a nibble for me if I do decide to buy it. The insurance industry has quite a few solid dividend payers that I think deserves a spot in any long term dividend growth portfolio. AFL, for example, is my largest holding. I also have CB and am considering TRV as well. Thank you for sharing your thoughts.
Right now, my eye is on e European insurer. They go ex dividend early may (like a lot of EU companies). I have puts to get into a postion by then. When that fails, I might buy the stock and sell calls against it.
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There’s a lot to like about investing in the insurance sector long term. A well managed insurance company can pay you back in many ways over the long haul. Nice to see you have your eyes in the industry as well. Thank you for commenting.
Boring is sexy when it comes to a lot of stock buying. People want the next amazon or tesla instead of good quality businesses at fair prices.
Ask Warren Buffett how he feels about insurance, considering he almost owns all of the reinsurance space and Geico. I always love the boring companies that people will ALWAYS need. They tend to be a little more recession proof as well.
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I always liked ‘boring’ when building out my portfolio. As you’ll notice I do not hold any new tech names or other highly volatile stocks or sectors in my portfolio. Boring lets me sleep well at night. I’m sure the insurance game has allowed Warren Buffett to sleep well too and also fund his future business acquisitions as well. Insurance really made Warren Buffett what he is today. There’s little doubt about that. Thank you for stopping by and commenting.
The simple business models are the best. I’m sure you’ve read through Buffett’s Letter to Shareholders this year? He always has a healthy section covering the property-casualty insurance business. Tremendous business model if you can underwrite at a profit.
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There’s a lot to like about the insurance business, especially the property and casualty segment. As long as we live in a physical world we’ll always need these services and it’s a model that is not easily disrupted by technology either. If done right, the insurance game can pay off greatly for companies and shareholders alike. Sometimes boring and simple make the most sense. As always, I appreciate your comment.
Great article. I only have Aflac in my portfolio now but will be looking to add more insurance companies soon. I also own a little Berkshire-Hathaway which definitely has insurance ownership within it. BRK doesn’t currently pay a dividend now, but I’m betting it will sometime in the future.
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Glad you enjoyed this overview of an otherwise pretty boring industry. Like you, I also own AFL, my largest holding, and also CB. I wouldn’t mind adding TRV to the mix as well. You definitely have some good insurance exposure with your BRK shares though. Thank you for commenting.