In this article, we will take a look at 11 of the best insurance dividend stocks to buy.
Interest rates have risen substantially in 2022. To fight inflation, the Federal Reserve has raised interest rates five times this year alone, with the last three raises at a pretty steep 0.75 percentage points each. As a result, the federal funds rate is now 3% to 3.25%, which is substantially higher than what it was at the beginning of the year. The interest rate hikes might not be over as many expect the federal funds rate to be between 4% and 4.5% by the end of the year.
Like they have in many other sectors, the rising interest rates have affected the insurance industry.
According to the Office of Financial Research,
Modestly rising interest rates are generally positive for the insurance industry. When rates rise at a reasonable pace, portfolio yields also rise. With these new, higher-yielding corporate and other bond purchases, insurers’ investment earnings also increase. Life insurers, in particular, benefit from a rising interest rate environment as they’re likely to earn improved spreads over the cost of funding liabilities.
As a result of the higher rates, some insurance companies have an easier time earning profits and shares of those companies have outperformed the market this year.
If inflation becomes too much of a problem, however, many insurers could also face headwinds, especially P&C insurers. The Office of Financial Research added,
Adding inflation to the mix, however, affects insurers differently. For example, while property and casualty (P&C) insurers also benefit from increased bond portfolio yields, higher-than-expected claim costs for home, automobile, and other insurance lines may impair earnings.
Similarly, if interest rates rise too much, the U.S. economy could enter into a deeper than expected recession and demand for insurance products could decrease.
Given the uncertainty in the markets today, it can be a good idea for investors to have a well diversified portfolio of stocks across many different sectors.
In terms of the insurance sector, here are 11 stocks with dividends to consider,
Copyright: mozakim / 123RF Stock Photo
Methodology
For the list of 11 Best Insurance Dividend Stocks To Buy Now, we took many of the largest insurance companies by market cap that are listed on the NYSE or NASDAQ and that also paid dividends. We then ranked them based on the number of hedge fund holders in our database that held shares in the same stock at the end of Q2 2022.
11 Best Insurance Dividend Stocks To Buy Now
11. Sun Life Financial Inc. (NYSE:SLF)
Dividend Yield as of 10/25: 5.09%
Number of Hedge Fund Holders: 12
Sun Life Financial Inc. (NYSE:SLF) is a leading insurer headquartered in Toronto with a dividend yield of slightly over 5% as of 10/25. Although interest rates have increased, Sun Life Financial Inc. (NYSE:SLF) shares have fallen around 25% year to date given lower equity values have been a headwind for the company’s asset management business. As a result, Sun Life Financial Inc. (NYSE:SLF) trades for a price to book value of 1.32. On 10/12 John Aiken of Barclays cut his price target to C$63 from C$67 on Sun Life Financial Inc. (NYSE:SLF) but kept an ‘Overweight’ rating.
Alongside Cigna Corporation (NYSE:CI), Humana Inc. (NYSE:HUM), and UnitedHealth Group Inc. (NYSE:UNH), Sun Life Financial Inc. (NYSE:SLF) is an insurance stock with a dividend that’s owned by many hedge funds in our database at the end of Q2 2022.
10. Prudential Financial, Inc. (NYSE:PRU)
Dividend Yield as of 10/25: 4.73%
Number of Hedge Fund Holders: 18
On 10/7 Jimmy Bhullar of JPMorgan cut his price target on Prudential Financial, Inc. (NYSE:PRU) to $118 from $122 and kept a ‘Neutral’ rating. Bhullar wrote that although the rise in interest rates is a positive, the weaker stock market as well as more macro uncertainty are headwinds.
The markets have also been cautious given that shares of Prudential Financial, Inc. (NYSE:PRU) are down slightly over 6% year to date. Nevertheless, Prudential Financial, Inc. (NYSE:PRU) has a quality business and also a dividend yield of 4.73% as of 10/25.
9. Hartford Financial Services Group, Inc. (NYSE:HIG)
Dividend Yield as of 10/25: 2.22%
Number of Hedge Fund Holders: 28
Unlike many stocks in the market, Hartford Financial Services Group, Inc. (NYSE:HIG) shares are actually positive this year, with the stock up 0.65% year to date.
One reason could be that Hartford Financial Services Group, Inc. (NYSE:HIG) has been buying back stock. In July, the company announced a new share repurchase authorization of $3 billion through 2024. Hartford Financial Services Group, Inc. (NYSE:HIG) also has a dividend yield of 2.22% as of 10/25.
In July, Hartford Financial Services Group, Inc. (NYSE:HIG) reported Q2 adjusted EPS of $2.15 versus the consensus of $1.52. The company had 12 month core earnings ROE of 14%.
8. Travelers Companies, Inc. (NYSE:TRV)
Dividend Yield as of 10/25: 2.11%
Number of Hedge Fund Holders: 31
For Travelers Companies, Inc. (NYSE:TRV), 2022 has been a strong year as shares of the insurer are up 12.5% year to date. One reason for the performance could be strong earnings.
For Q3, Travelers Companies, Inc. (NYSE:TRV) reported core EPS of $2.2 versus the consensus of $1.6. Adjusted book value per share rose 7% year over year to $111.9 and Travelers Companies, Inc. (NYSE:TRV) also returned $722 million in total capital during the quarter, with $501 million in stock buybacks. In terms of dividends, Travelers Companies, Inc. (NYSE:TRV) has a dividend yield of 2.11% as of 10/25.
7. Chubb Limited (NYSE:CB)
Dividend Yield as of 10/25: 1.65%
Number of Hedge Fund Holders: 35
Despite the weaker market, Chubb Limited (NYSE:CB) is up 4% year to date with strong earnings likely one reason for the strong performance.
For Q3, Chubb Limited (NYSE:CB) reported EPS of $3.17 versus the consensus of $2.51 given the company’s excellent underwriting results and record investment income. Although the company faces macro headwinds, Chubb Limited (NYSE:CB) nevertheless expects EPS to ‘continue to grow at a healthy rate into the future’.
As of 10/25, Chubb Limited (NYSE:CB) has a dividend yield of 1.65%. Of the 895 hedge funds in our database, 35 were long Chubb Limited (NYSE:CB), ranking the company #7 on our list of 11 Best Insurance Dividend Stocks To Buy Now.
6. Metlife, Inc. (NYSE:MET)
Dividend Yield as of 10/25: 2.82%
Number of Hedge Fund Holders: 36
Metlife, Inc. (NYSE:MET) shares have rallied over 13.5% given higher interest rates and other factors. The stock also has a dividend yield of 2.82% as of 10/25. In September, Wilma Burdis of Raymond James initiated Metlife, Inc. (NYSE:MET) with a $73 price target and a ‘Market Perform’ rating. Burdis believes Metlife, Inc. (NYSE:MET) is a solid company with a track record of robust capital returns and that the company has solid underlying growth trends.
Like Metlife, Inc. (NYSE:MET), Cigna Corporation (NYSE:CI), Humana Inc. (NYSE:HUM), and UnitedHealth Group Inc. (NYSE:UNH) are insurance stocks with dividends that’s owned by many hedge funds in our database at the end of the second quarter.
5. American International Group, Inc. (NYSE:AIG)
Dividend Yield as of 10/25: 2.36%
Number of Hedge Fund Holders: 44
American International Group, Inc. (NYSE:AIG) is one of the largest insurance companies in the world whose shares have done relatively well versus the market in 2022. While the S&P 500 is down around 20% year to date, American International Group, Inc. (NYSE:AIG) shares have fallen only 4.5% year to date. One reason could be the interest rate increases, and another reason could be that American International Group, Inc. (NYSE:AIG) repurchased $1.7 billion of common stock in the second quarter. American International Group, Inc. (NYSE:AIG) also has a dividend yield of 2.36% as of 10/25.
On October 12, Yaron Kinar of Jefferies upgraded American International Group, Inc. (NYSE:AIG) to ‘Buy’ from ‘Hold’ and raised his price target to $64 from $57. Kinar believes the company has more earnings momentum than what some other analysts expect.
4. The Progressive Corporation (NYSE:PGR)
Dividend Yield as of 10/25: 0.33%
Number of Hedge Fund Holders: 54
The Progressive Corporation (NYSE:PGR) has been one of the better performers in the S&P 500 this year with a year to date return of around 19% as many in the market expect the company to improve its margins and also gain market share in the next few years. Although it only has a dividend yield of 0.33% as of 10/25, The Progressive Corporation (NYSE:PGR)’s dividend has growth potential given The Progressive Corporation (NYSE:PGR)’s expected earnings growth in the next five years as well as the company’s low payout ratio. 54 hedge funds in our database owned shares of The Progressive Corporation (NYSE:PGR) at the end of Q2, 2022, ranking it #4 on our list of 15 Best Insurance Dividend Stocks To Buy Now.
3. Cigna Corporation (NYSE:CI)
Dividend Yield as of 10/25: 1.44%
Number of Hedge Fund Holders: 66
Cigna Corporation (NYSE:CI) has outperformed in 2022 with shares up 35.4% year to date. Although shares trade at 2.13 times book value, analysts expect the company’s earnings to rise fairly quickly over the next five years. Cigna Corporation (NYSE:CI)’s earnings per share growth could also be helped by buybacks as the company announced in February 2022 that it has increased its share repurchase authorization by an aggregate of $6 billion to a total capacity of $10 billion. As of 10/25, Cigna Corporation (NYSE:CI) also has a dividend yield of 1.44%.
2. Humana Inc. (NYSE:HUM)
Dividend Yield as of 10/25: 0.59%
Number of Hedge Fund Holders: 69
Humana Inc. (NYSE:HUM) shares have risen 14% year to date as the company benefits from growth in core Medicare Advantage as well as value-based care initiatives. Although Humana Inc. (NYSE:HUM)’s dividend yield as of 10/25 is only 0.59%, the company’s dividend has room to grow in the future given its expected EPS growth rate in the next five years.
Baron Funds commented on Humana Inc. (NYSE:HUM) in a Q3 Q3 2022 investor letter,
“We added to our position in Humana Inc. (NYSE:HUM), a managed health care company which we believe is benefiting from favorable secular trends, including the aging of the population, increasing adoption of Medicare Advantage over traditional Medicare, and the shift to value-based health care. Humana has two businesses, a health plan business and a health care services business. The health plan business is focused on the Medicare Advantage (MA) program, a government program under which the Center for Medicare & Medicaid Services (CMS) contracts with private sector health insurance companies to provide health insurance benefits in exchange for contractual payments from CMS. Overall Medicare enrollment is growing as the baby boomer generation ages into the Medicare program and MA is growing faster than traditional Medicare because MA companies provide additional benefits like dental, vision, and hearing coverage at no extra cost. These trends should continue to drive growth in MA enrollment for many years. Humana is a strong number two player in MA after UnitedHealth and has typically grown its MA business faster than the market.
In Humana’s health care services business, which is branded CenterWell, the company provides pharmacy services, home care services, and operates primary care clinics. Humana is one of the largest senior-focused, value-based primary care organizations and is also the largest home health organization in the country. Humana’s health care services business is higher margin and faster growing than the health plan business and should help drive margin expansion and earnings growth for the consolidated business. At a recent Investor Day, management provided a 2025 adjusted EPS growth target of $37, representing a 14% CAGR from 2022.”
1. UnitedHealth Group Inc. (NYSE:UNH)
Dividend Yield as of 10/25: 1.22%
Number of Hedge Fund Holders: 91
With 91 hedge fund holders in our database owning shares of UnitedHealth Group Inc. (NYSE:UNH) at the end of the second quarter, the stock ranks #1 on our list of 15 Best Insurance Dividend Stocks To Buy Now.
In 2022, UnitedHealth Group Inc. (NYSE:UNH) has rallied 7.6% year to date and the stock also has a dividend yield of 1.22% as of 10/25.
On 10/18, George Hill of Deutsche Bank raised his price target on UnitedHealth Group Inc. (NYSE:UNH) to $615 from $569 and kept a ‘Buy’ rating citing strong Q3 results as membership growth remains strong and as the company’s value based arrangements grow.
You can also take a look at 15 Biggest Dow Companies By Market Cap and 12 Best Ethical Stocks To Buy Now.
Follow Insider Monkey on Twitter
Suggested articles:
Disclosure: None. 11 Best Insurance Dividend Stocks To Buy Now is originally published on Insider Monkey.
