Dividend Analysis: Chubb
We analyze 25+ years of dividend data and 10+ years of fundamental data to understand the safety and growth prospects of a dividend. CB’s long-term dividend and fundamental data charts can all be seen by clicking here, but note that it does not include both companies’ combined operations.
Dividend Safety Score
Our Safety Score answers the question, “Is the current dividend payment safe?” We look at factors such as current and historical EPS and FCF payout ratios, debt levels, free cash flow generation, industry cyclicality, ROIC trends, and more. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.
Prior to the merger, CB had a Dividend Safety Score of 84, suggesting that its dividend is extremely safe. Prior to the merger, both companies had earnings payout ratios close to 30%. The combined company currently pays annual dividends of $2.68 per share, which results in a 27% payout ratio when using CB’s 2016 consensus earnings estimate of $9.90 per share. This is a very healthy payout ratio that provides plenty of room for unexpected catastrophe events and offers nice room for dividend growth.
As seen below, legacy CB’s payout ratios were always low and steady.
Source: Simply Safe Dividends
Source: Simply Safe Dividends
Another factor boosting CB’s Dividend Safety Score is the non-discretionary nature of most insurance policies. Regardless of how the economy is performing, buildings still need to be insured, protection is required from unexpected illnesses, and lives must be cared for. As a result, ACE and CB’s sales fell by just 4% and 6%, respectively, during fiscal year 2008.
Source: Simply Safe Dividends
Both companies continued generating excellent free cash flow during the recession, even despite the drop in value of their investment portfolios. The conservative approach CB takes to managing risk with its underwriting and investment portfolio helps the company endure tough times. While the insurance business requires a lot of financial capital to get started, it requires little in the way of tangible assets, resulting in great free cash flow generation.
Source: Simply Safe Dividends
Chubb Ltd (NYSE:CB) has earned commendable returns on capital for shareholders over the last decade, generating a double-digit return most years. While insurance is a commodity, CB’s economies of scale and risk management skill have helped it outperform many of its competitors.
Source: Simply Safe Dividends
Regarding the balance sheet, ACE did take on around $5 billion in debt to finance its acquisition of CB. However, S&P has issued CB an AA credit rating and the company’s overall financial health continues to look very good.
All things considered, CB’s dividend is extremely safe due to the company’s low payout ratios, excellent free cash flow generation, non-discretionary services, and healthy balance sheet.
