3 Insurance Stocks for Dividend Growth Investors
These names, ideal for income investors, have solid dividend yields, and long-term dividend growth potential.
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Income investors looking for quality businesses for long-term dividend growth should consider insurance stocks.
Insurance companies have an attractive business model. They collect premium income on the policies they underwrite, and also make money by investing the large sums of accumulated premiums that have not been paid out as claims.
Due to this, many insurance stocks can be found on the various lists of long-term dividend growth stocks such as the Dividend Aristocrats and Dividend Kings.
The following three insurance stocks have solid dividend yields, and long-term dividend growth potential.
Linc Your Portfolio to a High-Dividend Stock
Lincoln National Corp. LNC offers life insurance, annuities, retirement plan services and group protection. The corporation was founded in 1905 as The Lincoln National Life Insurance Company.
Pennsylvania-based Lincoln National reported fourth-quarter and full-year 2023 results on February 8. Adjusted income from operations equaled $1.45 per share compared to $0.76 in the same prior year period. Additionally, annuities average account balances rose 4% to $147 billion and group protection insurance premiums grew 3% to $1.3 billion. Book value per share (including adjusted income from operations) surged 43% year over year to $34.81.
Following Lincoln’s Fortitude Reinsurance deal, and the announcement of its Osaic deal, the company has laid out the long-term outlook for its target operating income earnings mix. It is targeting for Annuities to account for 45% to 55% of its earnings mix, group to account for 25% to 35%, retirement to be 5% to 15%, and life to make up the remaining 5% to 10%. This means Lincoln will be reducing its exposure to annuities, increasing its exposure to group and life, while retirement will remain in its current range.
The company's dividend appears to be in safe territory with an expected payout ratio of 27% for 2024, but LNC is not recession resistant and could face headwinds from a slowing economy. The company lists its automated underwriting within a defined criterion, and its LincXpress product, a simplified issue process, as marketplace competitive advantages.
LNC stock currently yields 5.6%, making it a high-dividend stock.
14 Consecutive Years of Dividend Hikes
The Hartford Financial Services Group HIG is a diversified insurer that offers a diverse range of property and casualty (P&C) insurance, group benefits, and mutual fund services to a customer base of individuals and corporations in the United States, and internationally.
2023 was a year of strong growth for Hartford Financial. In the fourth quarter the company reported net income of $766 million, which represents a 30% increase compared with the same quarter of 2022. Reported core earnings were $3.06 per diluted share, which represents an increase of 25% year over year.
The quarterly results benefited from strong performances in the Commercial Lines, Personal Lines, and Group Benefits businesses. The quarter's performance was boosted by an increase in property and casualty earned premiums and a decrease in catastrophe losses. Growth in fully insured ongoing premiums in the Group Benefits sector also played a role.
For the full year, Hartford Financial's earnings rose to $8.88 per share in 2023, up 17% from $7.58 per share in 2022. Annual revenues saw a 9.7% increase, reaching $24.5 billion for 2023.
Hartford Financial has grown earnings by 13.1% per year since 2014 and 11.8% over the past five years. We expect the company to grow its earnings per share by 8% per year on average over the next five years, mainly driven by commercial lines premium growth, assisted by optimizing costs and rising yields and interest rates.
EPS growth will also get a boost from the company’s ongoing share buybacks. The company had $350 million of share repurchases in the fourth quarter. It had a leftover buyback capacity of $1.35 billion as of December 31st, 2023.
Hartford Financial has a long history of paying dividends and has 14 consecutive years of annual dividend increases. In October 2023, the company increased its quarterly dividend by 10.6%. With the current payout ratio of 20%, HIG’s dividend payments are well covered by earnings.
Given the expected earnings growth, there is still room for the dividend to continue to grow moving forward while maintaining a payout ratio below 30%.
HIG stock currently yields 1.8%.
Get 'Umbrella' Coverage With This Long-Time Dividend Payer
The Travelers Companies TRV was founded in 1864. The company began with life and accident insurance but has expanded into other types of coverage in the 150+ years since then. Today, it generates about $42 billion in annual revenue. The company offers a wide and deep variety of protection products for auto, home, and business customers.
Travelers posted fourth-quarter and full-year earnings on January 19, and results were much better than expected. The company posted adjusted earnings per share of $7.01 for the quarter, which beat estimates by $1.92. Net written premiums, which is akin to revenue, was $9.99 billion. That was up more than 13% year over year, and beat estimates by $40 million.
Earned premium came to $9.97 billion, up from $8.82 billion in 2022’s Q4. Net investment income was $778 million, up from $625 million year over year. Underlying combined ratio was 85.9%, which was an enormous improvement from 90.6% in Q3 and from 91.4% in last year’s Q4. Adjusted book value ended the year at $122.90, up from $115.78 in Q3.
Travelers’ core business is performing well, and higher interest rates mean investment income is strong. Future growth will come primarily from higher underwritten premiums and the buyback program. The company’s share repurchases have reduced the float by about one-third in just the past decade.
Travelers’ main competitive advantage is in its immense scale and recognizable brand. Its size allows it to underwrite policies that others would not be able to, and its brand is well-known from its long history. The stock has a 2024 dividend payout ratio of 23%, meaning the payout is easily covered with room for continued increases. TRV has increased its dividend for 19 years.
TRV stock currently yields 1.7%.
At the time of publication, Ciura had no positions in any securities mentioned.