Friday, May 16, 2014

Stock Analysis of Chubb

The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. This dividend champion has paid dividends since 1902 and has managed to increase them for 32 years in a row.

The company’s latest dividend increase was announced in February 2014 when the Board of Directors approved a 13.60% increase in the interim dividend to 50 cents /share. The company’s peer group includes Travelers Cos (TRV), Allstate (ALL), and Cincinnati Financial (CINF).

Over the past decade this dividend growth stock has delivered an annualized total return of 12.40% to its shareholders.


The company has managed to deliver a 9.40% average increase in annual EPS since 2004. Chubb is expected to earn $7.37 per share in 2014 and $7.89 per share in 2015. In comparison, the company earned $9.04/share in 2013.

Chubb has a record of consistent share repurchases. Between 2006 and 2013, the number of shares decreased from 423 million to 259 million.

If interest rates start increasing, this could result in higher earnings from the premiums float that is being invested. As a result, it is quite possible that earnings per share could increase significantly from this tailwind.

The annual dividend payment has increased by 9.20% per year over the past decade, which is in line with growth in EPS.

A 9% growth in distributions translates into the dividend payment doubling every eight years on average. If we check the dividend history, going as far back as 1987, we could see that Chubb has indeed managed to double dividends every nine years on average.

The dividend payout ratio has largely remained below 29% throughout the decade. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. In Chubb’s case, a large portion of cashflow is spent on share buybacks than dividends.


The return on equity has been in a decline between 2007 and 2012. Overall the amounts for 2013 are just slightly lower than the amounts in 2004. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

Currently, the stock is attractively valued, as it trades at a forward P/E of 11.80 and yields 2.30%. I am analyzing the company because I believe it is quality dividend growth stock, which will be a very good addition to my portfolio on dips below $80/share, which is equivalent to a current yield above 2.50%.

Full Disclosure: Long CB

Relevant Articles:

Are Dividend Investors Benefiting from Stock Buybacks
Dividend Champions - The Best List for Dividend Investors
Does entry price matter to dividend investors?
Accumulating Dividend Stocks is a Long Term Process
How to be a successful dividend investor

This article was written by Dividend Growth Investor. If you enjoyed this article, please subscribe to have future articles emailed to you [Email] or follow me on Twitter [Twitter]

0 comments:

Post a Comment

Recent Posts From DIV-Net Members