A little-known Dividend Aristocrat will be paying investors 14% more this week.
But today I’m slowing things down a bit and focusing on a New Jersey based property & casualty insurance company.
OK, call it a big change of pace, but I still think it will be well worth your time.
Chubb (NYSE: CB) is not just an unsexy insurance stock, but it’s also a Dividend Aristocrat, having increased its annual dividend payment for 32 straight years. Its dividend yield comes in at 2.3%. That’s not overly striking on the surface, but bear with me.
Things get a little better when you consider that the company is upping its quarterly dividend 14% this week, to 57 cents a share. The stock will trade ex-dividend on March 11.
As I mentioned, Chubb has a storied history of dividend increases. It’s managed to consistently raise its dividend by maintaining a high-quality portfolio of insurance policies. That has helped it manage its expense ratio and catastrophe losses better than some of its peers.
And by generating plenty of cash each year, Chubb has not only been upping its dividend, but also buying back shares.
So, before getting too deep into the dividend story, it’s worth noting that Chubb is a buyback machine. It has reduced its shares outstanding over the last five years at a rate that dwarfs many of its major peers, including the likes of Allstate (NYSE: ALL), CNA Financial (NYSE: CNA), ACE (NYSE: ACE) and Cincinnati Financial (NASDAQ: CINF).
And its current buyback yield (the share buyback amount over the last year as a percentage of market cap) is one of the industry’s tops.
Still, when it comes to Dividend Aristocrats, many investors gravitate toward some of the more well-known names like Procter & Gamble (NYSE: PG) and McDonald’s (NYSE: MCD). In part, that is because these stocks pay larger dividend yields, at 3.1% and 3.5%, respectively.
But things aren’t always what they seem. If you look at Chubb from a total return perspective (which includes dividends and stock price appreciation), the stock has returned 523% over the last 15 years.
Over that same period, Procter & Gamble has returned 319% and McDonald’s has returned 339%. And both P&G and McDonald’s are paying out nearly 70% of earnings as dividends. That leaves little room for large increases going forward and even less flexibility if earnings start to fall.
Meanwhile, Chubb is paying out just 30% of its earnings via dividends.
For a little context, yesterday I focused on why Apple is a top dividend stock to own. Now, recall that Apple offers a 1.5% dividend yield and is paying out 25% of its earnings as dividends.
Chubb is offering a 2.3% dividend yield and its payout ratio is 30%. That’s a pretty compelling argument for a relatively unknown insurer from New Jersey.
And yet, with a $23 billion market cap, Chubb tends to fly under the radar. But don’t expect it to put shareholders at risk by trying to compete with the likes of American International Group (NYSE: AIG).
Chubb has shown a commitment to maintaining a manageable size, meaning it isn’t interested in growing the top line if the bottom line and profit margins will suffer.
Chubb doesn’t have the highest dividend yield among the Dividend Aristocrats. It doesn’t even have the highest dividend in the property and casualty industry.
But with a nearly 13% return on equity, relatively low-debt balance sheet and commitment to return cash to shareholders, it should be on every income seeker’s radar.
Dividends for Every Month of the Year
If you’re looking for just one dividend stock to round out your income stream, consider a little-known company that pays out dividends 12 months of the year.
Click here to see the full details of this company in my Dividend Calendar…