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Stock analysis: Chubb

The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. Chubb is a dividend aristocrat which has paid uninterrupted dividends on its common stock since 1902 and increased payments to common shareholders every year for 46 years.

The most recent dividend increase was in 2010, when the Board of Directors approved a 5.40% increase to 39 cents/share. The largest competitors of Cincinnati Financial include Berkshire Hathaway (BRK.B). Cincinnati Financial (CINF) and Travelers Corp (TRV).

Over the past decade this dividend growth stock has delivered an annualized total return of 7.40% to its loyal shareholders.

The company has managed to deliver an increase in EPS of 10.90% per year since 2005. Analysts expect Chubb to earn $5.60 per share in 2011 and $5.85 per share in 2012. In comparison Chubb earned $6.76 /share the company earned in 2010.

The company has been able to increase its return on equity from 2% in 2001 to 14% by 2010. The reason for the massive increase was due to the depressed state of earnings in 2001- 2002. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 8.30% per year over the past decade, which is much higher than the growth in EPS. I expect future growth in dividends to be closer to 10% over the next decade.

An 8% growth in distributions translates into the dividend payment doubling almost every nine years. If we look at historical data, going as far back as 1984, we see that Chubb has actually managed to double its dividend every eight years on average.

Over the past decade the dividend payout ratio has remained below 50%, with the exception of 2001 and 2002. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently Chubb is trading at 8.80 times earnings, yields 2.50% and has a sustainable dividend payout. The stock is attractively valued per my entry criteria which is why I would consider adding to my position in the stock subject to availability of funds.

Full Disclosure: Long CB

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