This Dividend Aristocrat Isn’t Stodgy
05/11/2011 6:00 am EST
Not only has insurance provider Chubb has raised its payout for 25 straight years, it’s a growth story that shows no signs of slowing down, writes Chloe Lutts, editor of Dick Davis Investment Digest.
A few months ago, we asked readers about the types of investments they wanted to read about. Small-cap stocks, technology stocks, and oil and gas stocks were all popular choices.
However, the investment class with the most votes by far—with 69% of readers expressing interest—was dividend-paying stocks.
One of the likely reasons for the high interest in dividend payers is the increasing number of Americans approaching, or at, retirement age. Owning dividend-paying stocks is a great way to keep receiving regular income after you retire. Consequently, I suspect that these investments will only increase in popularity as the baby boomers retire.
Those of you already invested in dividend payers will benefit as their increasing popularity drives up prices. And investors looking to add an income component to their portfolios will probably see even more options in coming years, as demand drives younger blue chip-type stocks like Cisco Systems (CSCO) to introduce dividends for the first time. I also expect some companies that currently pay only small dividends to increase their payouts, to attract more retiree investors.
Of course, there are already plenty of great dividend payers out there. The most reliable are the so-called “Dividend Aristocrats”—companies that have increased their dividends for at least 25 consecutive years.
Typically, a Dividend Aristocrat is, by its very nature, a large and relatively stable blue-chip company with a healthy balance sheet. A Dividend Aristocrat is considered the "gold standard" for dividend-generating stocks, and, as such, income investors seek them out.
A lot of companies, particularly financials, fell off this hallowed list in 2008 and 2009, so the ones left are truly the crème de la crème of dividend payers.
Today, I’d like to share one recommendation from the list:
Insurer Chubb (CB) was originally recommended in the Dividend Digest over a year ago, by John Eade of the Argus Weekly Staff Report.
At that time, he wrote: “We expect a well-managed combined loss and expense ratio and an aggressive stock buyback program to drive results, as the top line takes a couple more quarters to revive. The company’s balance sheet is in solid shape, with industry-low debt levels. CB shares are now trading at near parity to book value, which is historically an attractive valuation.”
In a follow-up published on February 9, Eade wrote: “We are maintaining our Buy rating and $65 target price on...Chubb. Chubb is doing a good job managing what it can control—the non-catastrophe combined loss and expense ratio—and its aggressive stock-buyback program is also driving results.”
Back then, Chubb was trading near $59. It has since hit that $65 target, and on March 16 it paid a 39-cent dividend, its highest ever. [The forward dividend yield now stands at 2.4%—Editor.]
Think insurance companies are boring? Think again. Well-managed insurers can be insanely profitable—and they produce most of their profits by investing customers’ premiums themselves, often in income-generating securities.
That's why owning top-quality insurance stocks like Chubb is a great way to generate reliable and growing income.