Key Points
- Insurance stocks face headwinds but can still produce solid cash flow for investors.
- These stocks are trading at the low end of long-term ranges and offering a buying opportunity.
- High-yield is average for this group, with the low at 2.9% and the high near 6.0%.
- 5 stocks we like better than Prudential Financial
The insurance industry faces many headwinds post-COVID normalization among them. While the headwinds continue to blow, the takeaway for investors is that insurance stocks are lightly valued, they produce cash, they pay solid dividends, margins are improving, and there are speculations of mergers and acquisitions.
Overall, the sector provides much of what long-term, growth-oriented, value-minded income. and high-yield stocks investors seek. The takeaway from the charts is that now is as good a time to buy into this group as any, and higher prices are on the way for some of these stocks.
Donegal Group has a Long History of Dividend Increases
Donegal Group NASDAQ: DGICA is a holding company and subsidiary of Donegal Mutual Insurance Company, headquartered in Pennsylvania. The company offers a full line of personal and commercial insurance to individuals, families, and businesses in the US. The company has grown over the past few quarters and reached historic levels in 2023. The growth is expected to continue through the end of the year and is driving solid cash flow for the business.
The dividend is worth about 4.6% to investors, with the stock at $14.50, and a significant distribution growth history exists. The company has made annual increases for more than a decade and should be able to continue the trend. The balance sheet is low on debt, and distributions are viewed as durable. The stock trades near the bottom of a long-term range with an upward bias, consistent with the group.
Global Indemnity Group: #1 Merger Target for 2023
Global Indemnity Group NYSE: GBLI shares are moving higher on an expected merger. No deal has been reached, but a company press release says several parties are interested. This suggests a potential bidding war for an underpriced stock and offers substantial upside without the 2.9% dividend yield.
Global Indemnity has paid a regular distribution since 2019, and there is no risk of cuts now. The annual payout is less than 50% of earnings, and earnings are expected to grow 50% this year to next.
HCI Group: Diversified Insurer with Strong Performance
HCI Group NYSE: HCI is based in Florida and offers some diversification with its portfolio of real estate assets. The company stock pays about 3.1% in yield, with shares trading near $52, although there is little expectation for a distribution increase now. The company has only ever raised its regular payment but hasn’t done so since 2019.
Regardless, the company is growing and outperforming its consensus targets regularly. A handful of analysts are covering the stock, pegged at Moderate Buy with a price target about 50% above the current action. That’s a significant figure, and the consensus is trending higher following the Q2 EPS release.
Manulife Financial: Double The Yield And A Solid Hold
Manulife Financial NYSE: MFC is a Toronto-based full-service insurance and financial services company with a global business. The recent results show core business is growing above target on new clients, deepening penetration, and increasing wealth management. The stock yields a group-leading 5.85%, which is sustainable.
The company pays out only 45% of its earnings and is on track to grow its annualized distribution for the 10th consecutive year. Analysts rate the stock a Hold and see it fairly valued near the middle of its trading range.
Prudential: A Rock for Income Investors
Prudential NYSE: PRU is a full-service insurer and financial services company and is the world’s largest. The company’s results have been mixed regarding expectations in 2022 but solid nevertheless. While growth is iffy, earnings remain strong and are sufficient to maintain the dividend and sustain distribution growth.
The stock yields an impressive 5.35% while paying a more impressive 40% of earnings, which suggests the 14-year history of increases could extend indefinitely. Analysts rate the stock a Hold and see it moving higher within its trading range.
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