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Donegal Group: "Cheap" Play in Insurance

04/24/2018 5:00 am EST

Focus: FINANCIALS

John Dobosz

Editor, Forbes Premium Income Report and Forbes Dividend Investor

Not a day passes that I don’t scour the market for opportunities in stocks and equity options, explains John Dobosz, editor of Forbes Dividend Investor.

I send out new rankings every Friday with the best 25 current buys. These stocks have safe and generous yields, usually averaging 4.5%. Here's a new addition to our buy list.

Founded in 1986, Marietta, Pa.-based insurance holding company Donegal Group (DGICA) provides personal and commercial insurance, including lines for personal and commercial vehicles, homeowners, and workers’ compensation.

The company also provides financial services to clients. Revenue this year is expected to grow 5.8% to $771 million, with earnings more than tripling to $0.93 per share from $0.30 in 2017, a year in which Donegal paid out an elevated level of claims on insured losses.

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On Thursday last week, Donegal hiked its quarterly dividend 1.8% to $0.1425 per share, with the ex-dividend date coming up on April 30.

We parted ways with DGICA earlier this year on February 23 with the stock at $15.70.  Often times, when a stock drops 10% it has farther to fall, and once the selling abates we can buy it again.

Adding Donegal now back into the Top 25 gets us into the stock at a lower price, and we didn’t even miss a dividend.

Donegal looks cheap, trading 17% below its five-year average price-sales ratio, and 38% below its average price-free cash flow ratio.

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