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Dividend Aristocrats Part 20 of 52: Cincinnati Financial Corporation (CINF)

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Cincinnati Financial Corporation (NASDAQ:CINFis one of just 17 publicly traded businesses to have increased its dividend payments for over 50 consecutive years in a row. Click here to see all 50+ year dividend stocks.

In total, Cincinnati Financial has paid increasing dividends for 54 consecutive years. The company was founded in 1986, and currently has a market cap of $9.9 billion.

Cincinnati Financial was gaining in popularity among the hedge funds tracked by Insider Monkey during the second quarter. 17 of said funds were long the stock, up from just 12 three months prior. Those funds collectively held 6.70% of the company’s shares, valued at over $552 million. Shares have gained over 20% since June 30, so hedge funds were right to make a greater move into the stock. First Eagle Investment Management held by far the largest stake in the stock of the investors that we follow, owning over 9.69 million shares on June 30, or about 83% of the total shares of Cincinnati Financial held by the elite investors that we track.


The company operates under four insurance lines:

– Life

– Personal

– Commercial

– Excess & Surplus

Cincinnati Financial’s performance since 1987 has been impressive. The company’s performance relative to the S&P 500 since 1987 is shown below:

CINF Performance

Source:  Cincinnati Financial 2015 Shareholder Meeting, slide 27

Cincinnati Financial’s strategy to grow shareholder wealth is different than the previous 2 Dividend Aristocrat insurers I’ve analyzed [Chubb Corp (NYSE:CB) and AFLAC Incorporated (NYSE:AFL)].

Chubb & Aflac seek to maintain low combined ratios (highly profitable insurance policies). They use the significant cash flows from their operations to repurchase shares. They also both maintain very conservative (mostly debt securities) investment portfolios.

Cincinnati Financial has a different strategy. The company’s goal is to maintain a combined ratio between 95% and 100%.  This means it looks to write barely profitable – or even break-even – insurance policies.  The company looks to provide returns for investors through growing the size of its operations and paying sizeable dividends, rather than spend the bulk of cash flows on share repurchases.

Over the last 3 years, Cincinnati Financial’s payout ratio has averaged around 60%. The stock currently has a 3.0% dividend yield, which is very high for the insurance industry.

Over 30% of Cincinnati Financial’s investment portfolio is invested in dividend growth stocks.  Over the long-run, Cincinnati Financial’s investment portfolio will realize greater growth than its more risk-averse rivals. The company’s approach to investing its insurance float is more comparable to Berkshire Hathaway Inc. (NYSE:BRK.A), rather than its Dividend Aristocrat insurance peers.

Competitive Advantage

Cincinnati Financial’s long dividend history is strong evidence of a durable competitive advantage. On closer inspection, Cincinnati Financial only has a weak competitive advantage relative to its peers.

The company’s long-standing relationship with independent insurance agents make up its competitive advantage. Cincinnati Financial Corporation (NASDAQ:CINF) becomes a preferred recommendation for independent agents as they become familiar with the company.  The image below shows how Cincinnati Financial’s market share by agency grows through time as agents become more familiar with the company.

CINF Agency Growth Through Time

Source:  Cincinnati Financial September 2015 Investor Handout

The company’s phenomenal growth over the last 50+ years is more a factor of the company operating in a slow changing industry.  The insurance industry is one of (if not the most) slowest changing industries. This gives companies that right break-even or profitable insurance policies safety and longevity that businesses in other industries do not enjoy.

In addition, Cincinnati Financial’s more aggressive investment policy helps the company to compound shareholder wealth through time. Cincinnati Financial is a dividend growth stock that uses its investment float to invest in other dividend growth stocks.

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