Dividend Aristocrats in Focus Part 13: Cincinnati Financial Corporation (CINF)

Valuation & Expected Total Returns

Cincinnati Financial Corporation (NASDAQ:CINF) stock has a price-to-earnings ratio of 25. This is right on par with the S&P 500 price-to-earnings ratio. Insurance companies have historically traded for a discount to the market, and Cincinnati Financial is no exception.  The company has historically traded for a median ratio of around 0.9x relative to the S&P 500.

With that in mind, future returns will be comprised of earnings-per-share growth plus dividends, minus any expansion or contraction in the price-to-earnings multiple.

As far as dividends, investors can expect annual dividend growth in line with Cincinnati Financial’s historical average. Over the past 10 years, dividends have increased by 3.1% compounded annually. The stock has a current dividend of 2.7%, which is higher than the 2% average dividend yield in the S&P 500.

If Cincinnati Financial grows at its historical rates, investors will see total returns of around 6% a year, before changes in the valuation multiple.

Final Thoughts

Cincinnati Financial is a legendary dividend stock. It has one of the longest streaks of annual dividend increases in the entire stock market. Plus, Cincinnati has offered special dividends on occasion, like last December when the company declared a $0.46 per share special dividend in addition to its regular dividend.

There’s no doubt the company is very shareholder friendly, but now is not the time to invest in Cincinnati Financial.  The company is trading for a high price-to-earnings ratio for an insurer.  Investors looking for stable dividends, growth, and value in the insurance sector should look at this Dividend Aristocrat insurer, instead.

Note: This article is written by Bob Ciura and was originally published at Sure Dividend.

Additional Links:

(1) http://www.suredividend.com/dividend-aristocrats-list/?utm_source=bc&utm_medium=sd&utm_campaign=102316sd

(2) http://media.corporate-ir.net/media_files/irol/11/110365/reports/2015AR/docs/CPL2016.pdf

(3) http://phx.corporate-ir.net/phoenix.zhtml?c=110365&p=irol-presentations