Income investors looking for quality businesses for long-term dividend growth should consider insurance stocks. Insurance companies have an attractive business model. Insurers collect premium income on the policies they underwrite, and also make money by investing the large sums of accumulated premiums that have not been paid out as claims.
Due to this, many insurance stocks can be found on the various lists of long-term dividend growth stocks such as the Dividend Aristocrats and Dividend Kings.
The following 3 insurance stocks have solid dividend yields, and long-term dividend growth potential.
The Hanover Insurance Group (THG)
The Hanover Insurance Group is a holding company whose primary business is offering property and casualty insurance products and services. The company markets itself through independent agents and brokers in the United States.
In 2023, Personal Lines accounted for approximately 42% of segmented revenues; Commercial Lines, 36%; Other Property & Casualty, 22%. The company operates an investment portfolio that is primarily exposed to fixed-income securities.
On July 31st, 2024, The Hanover Insurance Group reported its financial results for the second quarter for the period ending June 30th, 2024. The company announced net income of $40.5 million, or $1.12 per diluted share, a significant improvement from a net loss of $69.2 million, or $1.94 per basic share, in the same period the previous year.
Operating income for the quarter was $68.1 million, or $1.88 per diluted share, compared to an operating loss of $68.3 million, or $1.91 per diluted share, in the prior-year quarter. The combined ratio for the second quarter, excluding catastrophes, was 88.5%, reflecting continued effective pricing and margin recapture initiatives across its three segments.
Hanover Insurance has a long history of paying dividends and has 19 consecutive years of annual dividend increases. In December 2023, the board increased the quarterly dividend by 4.9% from $0.81 to $0.85. Over the last five years, the average annual growth rate is 6.8%.
Aflac Inc. (AFL)
Aflac Inc., founded in 1955, is the world’s largest underwriter of supplemental cancer insurance. The diversified insurance corporation also provides accident, short-term disability, critical illness, dental, vision, and life insurance. Aflac has increased its dividend for 42 consecutive years, placing it on the Dividend Aristocrats list.
On July 31st, 2024, Aflac announced second quarter results for the period ending June 30th, 2024. For the quarter, revenue declined 0.6% to $5.14 billion, but topped expectations by $830 million. Net earnings equaled $1.80 billion million, or $3.10 per share, compared to $1.6 billion, or $2.71 per share, in the prior year. However, this includes investment gains which are excluded from adjusted earnings.
On an adjusted basis, earnings-per-share equaled $1.83 versus $2.16 in the prior year. Adjusted EPS was above estimates. Currency headwinds once again impacted results. In U.S. dollars, Aflac Japan’s quarterly net earned premiums declined 16.6% to $1.7 billion while Aflac U.S. net earned premiums improved 2.1% to $1.5 billion. Adjusted book value increased 12.1% to $52.26 per share. Aflac repurchased 9.3 million shares at an average price of $86.02 during the quarter. The company has 59.2 million shares, or 10.4% of its outstanding share count, remaining on its repurchase authorization.
The dividend payout ratio is expected to be around 30% for 2024, which indicates a safe dividend. AFL stock currently yields 1.7%.
Lincoln National (LNC)
Lincoln National Corporation offers life insurance, annuities, retirement plan services and group protection. The corporation was founded in 1905 as The Lincoln National Life Insurance Company. Permission from Abraham Lincoln’s son to use the former president’s name was granted. In 1912, the company entered the reinsurance business. The corporation has grown into a market capitalization of $5.0 billion.
Lincoln National reported second quarter 2024 results on August 1st, 2024, for the period ending June 30th, 2024. The company generated net income of $5.11 per share in the quarter, which compared favorably to $2.94 in the second quarter of 2023. Adjusted income from operations equaled $1.84 per share compared to $2.02 in the same prior year period. Additionally, annuities average account balances rose by 6.8% to $158 billion and group protection insurance premiums grew 2.8% to $1.3 billion.
The company has laid out the long-term outlook for its target operating income earnings mix. It is targeting for Annuities to account for 45% to 55% of its earnings mix, group to account for 25% to 35%, retirement to be 5% to 15%, and life to make up the remaining 5% to 10%.
This means Lincoln will be reducing its exposure to annuities, increasing its exposure to group and life, while retirement will remain in its current range.
With a 31% expected dividend payout ratio for 2024, the dividend appears secure. LNC stock currently yields 5.5%.
Disclosure: No positions in any stocks mentioned
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Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.