3 Insurance Stocks for Long-Term Dividend Growth

Stocks to buy

Insurance stocks are attractive long-term investments for dividend growth investors. This is because the business model is appealing for investment.

Top insurance companies produce a high level of profits each year because they make money in two ways. Not only do insurers collect premium income on the policies they underwrite but they 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 three insurance stocks have long histories of dividend growth, solid dividend yields above the S&P 500 average, and long-term growth potential.

Equitable Holdings (EQH)

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Equitable Holdings (NYSE:EQH) is a leading financial services company specializing in individual retirement, group retirement, investment management and research, and protection solutions. With a history tracing back to 1859, the firm was formerly a fully owned subsidiary of France’s AXA. The company completed its U.S. initial public offering (IPO) in 2018 and has raised its dividend every year since.

Equitable Holdings reported Q2 2023 earnings on Aug. 2. For the quarter, the company reported net income of $2.06 per share, compared to the $2.47 in earnings per share (EPS) in the same period of 2022. The company also declared a dividend of 22 cents per share of common stock. This dividend was paid on Aug. 14.

The company outlined some key growth initiatives during its inaugural investor day in May and provided some meaningful updates to the company’s financial guidance to 2027, including $2 billion of cash generation and 12%-15% non-GAAP operating EPS. Importantly for dividend investors, the company has revised its payout ratio target to 60%-70% of non-GAAP operating earnings.

We expect that earnings and dividends will grow at a compound annual growth rate (CAGR) of approximately 6% over the next five years, with expected 2028 EPS of around $7.36 and a dividend payment of $1.18 per share.

With reliable earnings, and an extremely low payout ratio of 16%, Equitable Holdings is well-positioned to carry on its growth strategy even in the face of rising interest rates and an overall negative macro climate. With the consistent cash flows from premiums coming in, and a comparatively low dividend expense, there is plenty of room to continue raising dividends. EQH stock yields 3.2%.

Aflac (AFL)

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Aflac (NYSE:AFL), 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. Roughly 70% of the company’s pretax earnings are from Japan, with 30% coming from the U.S.

Aflac has a tremendous history of dividend increases. It has increased its dividend for 41 consecutive years, placing it on the exclusive list of Dividend Aristocrats.

On Aug. 1, Aflac announced second-quarter results for the period ending June 30. For the quarter, the company reported $5.17 billion in revenue, a 2.8% decline compared to Q2 of 2022. However, revenue was $700 million higher than expected. On an adjusted basis, EPS equaled $1.58 versus $2.16 in the year-ago period. Adjusted book value increased 11.5% to $46.61 per share.

Aflac has two sources of revenue: income from premiums and income from investments. On the premium side, this is generally sticky with policy renewals making up the bulk of income. However, Aflac operates in two developed markets where we would not anticipate outsized growth in the business. The other lever available is on the investment side, where the vast majority of the portfolio is in bonds. Here there is a possibility for income improvement should rates continue to rise in the future.

Share buybacks will also boost Aflac’s EPS growth. Aflac repurchased 10.5 million shares at an average price of $66.67 during the most recent quarter. The company has 95.8 million shares, or 16% of its outstanding share count, remaining on its repurchase authorization.

Aflac is expected to earn $5.96 in 2023. This means the dividend payout ratio is expected to be just under 30% for 2023, which indicates a safe dividend. AFL stock currently yields 2.2%.

The Travelers Companies (TRV)

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The Travelers Companies (NYSE:TRV) was founded in 1864. The company began with life and accident insurance but has expanded into other types of coverage in the 150+ years since then. Today, it generates over $37 billion in annual revenue. The company offers a wide and deep variety of protection products for auto, home and business customers.

Travelers posted second-quarter earnings on July 20. Revenue was up 10.5% year-over-year to $10.1 billion, which was $750 million ahead of estimates. Catastrophe losses of $1.481 billion pre-tax was double the year-ago period. On an underlying basis, the combined ratio improved 170 bps to 91.1%.

Net written premiums were a new record of $10.32 billion, up 14% year-over-year. Earnings premium of $9.22 billion against $8.85 billion a year ago, as earned premiums were higher in all three segments. Book value per share declined fractionally from last year’s Q2 to $95.46, which was driven by higher interest rates. Net investment income was $712 million, up from $707 million a year ago.

We expect 6% EPS growth over the next five years, even with the lower earnings base for 2023. Travelers could achieve this growth primarily from higher underwritten premiums and the buyback program, although margins should play a part as well, as long as there aren’t any large catastrophes. We forecast low single-digit gains from higher revenue as well as a similar tailwind from the company’s buyback, which has reduced the float by about a third in just the past decade.

TRV maintains a dividend payout ratio of approximately 33%, which indicates a very safe dividend. TRV stock yields 2.4%.

On the date of publication, Bob Ciura did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. 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.

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