The Travelers Companies (TRV) traces its origin back to 1864 when two businessmen founded the company in Connecticut, observes Ben Reynolds, editor of the recently-launched advisory service, Sure Passive Income.
Travelers offers a wide array of commercial, personal, and property insurance. The company trades for a market capitalization of $35 billion and generates annual sales of $32 billion.
The company’s management has increased the dividend for 15 consecutive years. This long streak of rising dividends is evidence of a durable competitive advantage. Travelers’ main competitive advantages are its scale and its brand, both of which have been built over the past 156 years.
The company is likely to continue increasing its dividend as it has a payout ratio of just 39% of expected fiscal 2020 adjusted earnings-per-share of $8.70. Travelers stock currently has a 2.5% dividend yield, which is in excess of the S&P 500’s current dividend yield of 1.6%.
While the dividend has been increasing over time, the company has also rewarded shareholders with sizeable share repurchases over time. Travelers has reduced its share count at a 5.6% annualized rate from fiscal 2010 through fiscal 2019.
As an insurance company, income from investments is important for Travelers. Low investment yields have hurt the bottom line. But, if interest rates rise, the company will likely generate greater investment income as it will be able to invest its float into higher yielding securities.
Overall, we expect Travelers to grow its earnings-per-share at around 8% annually over the next five years. This growth will come primarily from higher underwritten premium growth, better margins, and its well-funded buyback program. With that said, catastrophic losses in any one year could damper growth temporarily.
We believe Travelers will continue to reward shareholders with solid growth and rising dividends over time. The company’s proven business model has stood the test of time, which makes Travelers a favorable buy and long-term hold option for investors looking for rising passive income.
