Thursday, May 19, 2011

Cincinnati Financial Corp. (CINF) Dividend Stock Analysis

Cincinnati Financial Corporation is a property and casualty insurance company operating in 39 states. Through its subsidiary, The Cincinnati Life Insurance Company, it also provides life insurance. The company was formed in 1950 and is a Dividend Aristocrat. That's quite a track record since at least 25 of the 61 years of operation, the company has increased their dividends to shareholders. In fact, the company proudly mentions on their site that they have increased dividends for 50 years consecutively.

Quick Facts

  • Stock Ticker: CINF
  • Market Cap.: 5.08B$
  • P/E: 13.67
  • Forward P/E: 20.61
  • P/B: 0.99
  • EPS: $2.28
  • Beta: 0.662
  • Liabilities to Equity Ratio: 2.00
  • Quarterly Dividends: $0.40
  • Dividend Yield: 5.14%
  • Dividend Payout Ratio: 68.53%
  • ROE: 9.64%
  • 5 Year EPS Growth Average: 25.26%
  • 5 Year Dividend Growth Average: 4.44%
  • 52-Week Low: $25.25
  • 52-Week High: $34.33
  • 52-Week Range: 64.87%
It has been 2 years now since the financial crisis hit the markets and while the banks have recovered, namely most of the Canadian banks, the insurance companies are starting to show signs of recovery. CINF was impacted in their stock price and followed the markets but their business was would have been shielded from the mortgage crisis compared with many Canadian life insurance companies as they were exposed to many financial products.

Here are the 1 year and 5 year charts. I like to see how it has been performing over the past year and how it did before the market crash.

CINF Dividend Stock Analysis

CINF Dividend Stock Analysis

 


Dividend Growth

As a dividend aristocrat, you wouldn't expect anything else in terms of dividend growth. Clearly the growth slowed down during the financial crisis. I would expect 2011 to show better growth or at least show signs through other metrics if not dividends.

CINF Dividend Growth


Dividend Payout Ratio

The payout ratio had significantly improved over the past decade and I am glad to see it did not go as high as it has in the past. A 60% payout is decent considering the financial market situation over the past 2 years. I'd like to see it go back down now for a sign of recovery.

CINF EPS Growth

EPS Growth

CINF shows it wasn't immune to the market crisis even if it wasn't exposed to the mortgage sub-prime as Manulife and other insurance companies were. Clearly, the financial struggles of individuals affected their point of sale performance for lower earnings. I am surprised that 2010 wasn't higher than 2009. Earnings for the first quarter of 2011 are currently lower than the 1st quarter of 2010.

CINF Dividend Payout Ratio


Thoughts

One aspect of the company I like is its business focus. It is relatively small compared with the major Canadian insurance companies I am familiar with and it continues to focus on what they are good at. They have strong fundamentals and I can't overlook 50 years of dividend increase. Analysts tend to be bearish on the stock at the moment and it could make it a contrarian investment. Casualty and property insurance may actually take slightly longer to recover.

As a Canadian investor, the value of the dollar provides us with opportunity to invest in solid US companies and CINF may just fit the bill and the timing may be appropriate.

Interestingly enough, Sun Life and Great West LifeCo both have a similar yields with a good history of dividend growth. Comparing them to each other, GWO would be the winner from a growth perspective over the past 10 years.

Insurance Investment

Full Disclosure: No positions in CINF, GWO as of writing. Long SLF
Disclaimer: The material presented should not be considered a recommendation. You should always do your own research and reach your own conclusion.

This article was written by The Passive Income Earner. If you enjoyed this article, please consider subscribing to my feed.

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