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Travelers: High-Quality (But Expensive) Dividend Growth Stock

Travelers: High-Quality (But Expensive) Dividend Growth Stock
 Mohamed Ahmed Soliman | Dreamstime.com

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Monday, 17 June 2019 09:20 AM Current | Bio | Archive

Despite increased trade tensions and worries over slowing global economic growth, The Travelers Companies stock has significantly outperformed the broader market this year.

Shares of Travelers (TRV) have gained 25% year-to-date, compared with a 15% year-to-date increase for the S&P 500 Index.

The recent earnings report beat expectations, and the company shows no signs of slowing down. While value investors may see reason to avoid the stock near its all-time high, Travelers remains a strong dividend growth company, which makes it among the top insurance stocks today.

Steady Growth Insures Dividend Increases

The Travelers Companies was founded all the way back in 1864. The company began with life and accident insurance but has expanded into various other types of coverage in the 150+ years since then. Today, it enjoys $29 billion in annual revenue and a $39 billion market capitalization. Travelers offers a wide variety of insurance products for auto, home and business customers.

Travelers reported Q1 earnings on 4/18/19 and results were strong. Total revenue rose 5% thanks mostly to a 3% gain in net written premiums, with strength across all of its segments. Gross written premiums rose 6% during Q1 to a new record of $7.8 billion. Profitability increased as well thanks to lower catastrophe losses and stronger underwriting, with core income per diluted share rising 15% year-over-year to $2.83, which beat analyst estimates by $0.10 per share.

The company’s underlying combined ratio came in at 91.6% in Q1 against 92.4% in the year-ago period, reflecting lower losses and boosting margins. A 3% lower share count year-over-year also helped to drive earnings-per-share improvement in excess of the rate of revenue growth.

Net investment income fell slightly year-over-year thanks to lower private equity income, but the $496 million Travelers generated allowed it to return $625 million of cash to shareholders in Q1 via dividends and buybacks. Book value is now up to $92.94 per share, a gain of 7% in the last year.

Along with first-quarter results, Travelers raised its quarterly dividend by 6.5% to $0.82 per share. The company has increased its dividend each year for 15 consecutive years. In that time, it has raised its dividend at a compound annual growth rate of more than 9%. Travelers has a forward dividend yield of 2.2%, which slightly beats the average dividend yield of the S&P 500 Index. Travelers is not a high-yield stock, but it provides a solid yield along with consistent dividend growth.

The Bottom Line

Travelers is a high-quality company with a strong brand. The only downside of investing in Travelers stock today appears to be its valuation. Due to the multi-year rally, Travelers stock trades at an all-time high. As a result, the 2019 P/E of 13.5, compared with a 10-year average P/E ratio of 11.3.

Now might not be the most opportune time to buy Travelers, due to its elevated valuation, but the company should continue to deliver steady earnings growth and annual dividend increases in the years ahead.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

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BenReynolds
Despite increased trade tensions and worries over slowing global economic growth, The Travelers Companies stock has significantly outperformed the broader market this year.
travelers, dividend, growth, stock
519
2019-20-17
Monday, 17 June 2019 09:20 AM
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