The Travelers Companies (TRV) traces its origin back to 1864; it offers a wide array of commercial, personal, and property insurance. The stock has a market cap of $39 billion and generates annual sales of $32 billion, notes Ben Reynolds, editor of Sure Passive Income.
We recommended Traveler’s as a top pick for 2021 because the company has a long history of dividend increases, regularly and significantly repurchases shares, and has solid growth prospects. The company has reduced its share count by 4.7% a year on average from fiscal 2011 through fiscal 2020.
At the time of our initial recommendation, Traveler’s stock had a 2.5% dividend yield to go along with expected growth of around 8% annually. A reasonable dividend coupled with strong share repurchases gave Traveler’s a high shareholder yield.
And solid growth combined with a dividend yield above the S&P 500’s made Traveler’s a compelling choice for long-term buy and hold dividend investors.
Over the last 6 months, we’ve slightly lowered our annualized growth estimate for Traveler’s from around 8% annually to 6.0% annually as the company’s growth has slowed somewhat since our first writeup. Traveler’s also announced its 16th consecutive annual dividend increase — a 3.5% bump.
One catalyst we see for Traveler’s moving forward is potentially rising interest rates. With inflation increasing, it’s becoming more likely that interest rates rise to counteract inflation. If this occurs, the company will likely generate greater investment income as it will be able to invest its float into higher yielding securities.
The company’s shares have increased in value since the beginning of the year, and are trading above our fair value estimate of ~$130/share. The stock will likely continue rewarding investors with dividend increases for years ahead, and potentially rising interest rates could provide a tailwind for earnings. As a result, we view Traveler’s as a hold at current prices.
