Finding dividends in the financial industry isn’t easy. But there’s one part of this industry that does continue to deliver.
The insurance industry is one of the least sexy in the market.
As a result, insurance investors aren’t expecting much excitement this year. But what they can count on is a steady flow of dividends.
Most of the major insurers have been in business for well over 100 years. And they have strong brand names. That brings with it a steady flow of premiums, making their dividends a bit more safe than more volatile industries. Recall what the fall in oil prices did to SeaDrill’s (NYSE: SDRL) high dividend.
And unlike other parts of the finance industry such as real estate investment trusts (REITs) and investment banks, the insurance industry has a number of Dividend Aristocrats.
Here are the top dividend stocks from the insurance industry for 2015:
Property & Casualty
This part of the insurance industry is one of the best places to find dividend payers. There are over 60 property & casualty insurers paying a dividend. The industry is filled with popular names like The Allstate Corp. (NYSE: ALL), The Travelers Cos. (NYSE: TRV), and ACE Ltd. (NYSE: ACE). But all three offer dividend yields below the property & casualty industry average yield of 2.4%.
One of the best plays in the industry is Cincinnati Financial Corp. (NASDAQ: CINF), which offers a 3.4% yield. This insurer has been in business for over 60 years. But the really great news is that it has upped its dividend for 54 straight years now, making it one of the oldest Dividend Aristocrats around.
Cincinnati Financial offers various types of insurance, including auto, workers’compensation, homeowners, property and casualty. It continues to grow its top line by adding more agencies and entering more states. Since 2007, it has entered seven new states. And it has one of the best balance sheets in the industry, with just $900 million in debt, versus its $8.3 billion market cap.
Another solid pick in the property & casualty space is Canada-based Sun Life Financial (NYSE: SLF). It’s the third-largest insurer in Canada. One of the big drivers for Sun Life is international expansion, most notably, in Asia. Currently, Asia only makes up around 3% of its earnings, but the goal is to raise this to 12.5% in the near term.
However, Sun Life only has a two-year streak of consecutive dividend payment increases. For investors who want more of a track record, there’s The Chubb Corp. (NYSE: CB). Its dividend is just 1.9%, but it is another Dividend Aristocrat — having upped its dividend for 49 straight years.
Life Insurance Stocks
Easily, two of the biggest players also happen to be the best dividend opportunities in the life insurance industry. MetLife (NYSE: MET) and Prudential Financial (NYSE: PRU) both offer dividend yields of 2.6%. Meanwhile, both are attractive from a valuation perspective, trading right at book value.
MetLife tapered its dividend during the financial crisis, but has still managed to pay a dividend for 12 years now. It also has a strong brand name and should be a big benefactor of a strengthening labor market and economy. It’s also worth noting that it has a broad international presence.
The big overhang for MetLife shares has been its designation as a non-bank systemically important financial institution (SIFI), which means it will be subject to greater regulatory oversight. Though this isn’t ideal, the resolution should do away with the regulatory uncertainty and allow investors to focus on the future.
Accident & Health Insurers Stocks
Aflac (NYSE: AFL) is by far the largest player by market cap in the accident and health insurance space — at $27.5 billion. Aflac’s core business is in selling supplemental health insurance; three-quarters of its revenues are derived from Japan.
Aflac’s 2.6% dividend yield is well above the accident and health insurance industry average yield of 1.7%. What’s more is that Aflac is another Dividend Aristocrat, having upped its dividend for 32 straight years.
The insurer’s earnings have been overshadowed by Japan’s weak yen, but its fundamentals remain strong in both the U.S. and Japan. Trading at a price-to-earnings ratio of less than 10, Aflac is also interesting from a valuation perspective.
Insurance Broker Stocks
Perhaps one of the more underrated parts of the insurance industry is the insurance brokers. Marsh & McLennan Cos. (NYSE: MMC), with a near $31 billion market cap, is the leader in this industry. But its dividend yield is just 2%.
For a juicier yield, investors can have a look at Arthur J Gallagher & Co. (NYSE: AJG). This $7.6 billion market cap insurance broker offers a 3.1% dividend yield. It has only upped its dividend for two years, but has been paying a dividend for over 25 years.
In the end, the insurance space is often overlooked for higher-yielding plays in the financial space, like REITs. But the stability of the insurance industry and steadiness of its dividends should be attractive for long-term investors.
Time to move on up – to Dividend Avenue
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