The Dividend Aristocrats series covers all 50 Dividend Aristocrats (1)– stocks with 25+ years of rising dividends in the S&P 500. Cincinnati Financial meets this qualification, twice.
The company is part of an even more exclusive group called the ‘Dividend Kings’. To be a Dividend King, a stock must have raised its dividends for 50+ consecutive years. You can see all the Dividend Kings here.
Cincinnati Financial has a long history of principled management. The company traces its roots back to 1950, when four independent insurance agents decided to branch out and form their own company. Since then, Cincinnati Financial has prided itself on delivering local, fair, and prompt claims to policy holders.
This has strengthened the company’s relationships with its policyholders, which in turn has richly rewarded shareholders for many years. Like the Dividend Aristocrats Index, Cincinnati Financial has outperformed the S&P 500 over the last decade (thanks in large part to recent strong performance).
Cincinnati Financial currently offers investors a 2.7% dividend yield. Keep reading this article to learn more about the investment prospects of Cincinnati Financial.
Cincinnati Financial offers standard market and surplus commercial lines in 39 states, and its personal line policies in 31 states. operates under four insurance lines:
- Excess & Surplus
The commercial business is Cincinnati Financial’s largest, comprising 58% of its total revenue last year. Personal lines is its next-largest business, at 21% of total revenue.
Source: 2015 CEO Letter to Shareholders, page 2 (2)
The company abides by a strict ethical code. Ethics are at the foundation of Cincinnati Financial’s business plan. The company has a motto of “Actions speak louder in person”.
These principles are how it has built such a successful business and high satisfaction rates among its customers. Cincinnati Financial was named one of Fortune’s 50 most trustworthy financial companies in 2015, for the fifth year in a row.
Source: 2016 Annual Meeting of Shareholders, page 8 (3)
Cincinnati Financial takes a slightly different approach than others in the insurance business. Instead of keeping a focus on the highest-margin products, Cincinnati Financial does not object to issuing low-margin policies. It makes up for this with volume and capturing additional market share.
Separately, while many insurance companies split their capital allocation programs between share repurchases and dividends, Cincinnati Financial chooses to allocate most of its shareholder returns toward dividends.
Insurance companies make money in two ways, by writing policies and by investing their large pools of capital. This creates multiple income streams and can lead to steady value creation from year to year.
These qualities have attracted some of the world’s legendary investors to the insurance industry. For example, Warren Buffett owns GEICO.