We recently compiled a list of the 8 Cash-Rich Dividend Stocks To Invest In Now. In this article, we are going to take a look at where Cincinnati Financial Corporation (NASDAQ:CINF) stands against the other cash-rich dividend stocks.
Cash remains a critical asset, as companies with strong cash reserves tend to attract investors regardless of the economic climate. A robust cash position allows businesses to enhance shareholder value through activities such as paying dividends, buying back shares, or pursuing strategic acquisitions. That said, cash has underperformed compared to other assets, but with yields at their highest in years and economic and inflation uncertainty, many people have chosen to keep their extra funds in money markets, certificates of deposit, high-yield savings accounts, and Treasury bills. A survey conducted in July by Empower found that 49% of Americans felt more secure holding cash than other investments. The survey, which polled 1,009 US adults, also found that cash made up more than 27% of respondents’ portfolios. However, financial experts like Luis Alvarado, global fixed income strategist at Wells Fargo Investment Institute, generally recommend keeping only 3% to 5% of a portfolio in cash for emergencies and liquidity needs.
Also read: 10 Best Mid-Cap Dividend Aristocrats To Buy
The US financial markets are currently supported by an enormous pool of liquidity, with substantial funds held in money market accounts and other short-term investments. According to T. Rowe Price, US money market funds alone managed nearly $6 trillion in assets as of mid-December 2023—an increase of over 60% since December 2019, just before the onset of the pandemic. As of the week ending December 4, a record $6.77 trillion is held in money market funds, according to the Investment Company Institute. This amount is nearly half a trillion dollars higher than the funds held in September before the Federal Reserve implemented its first interest rate cut in four years, followed by another in November.
A report from treasury advisory firm Carfang Group noted that corporate cash reserves have steadily grown since the pandemic began. The ongoing strength of the economy has enabled companies to set aside more funds and earn returns on short-term investments. As of Q1 2024, US corporations increased their cash holdings to an all-time high of $4.11 trillion, driven by a robust economy and relatively high interest rates, which enhanced returns. This represents a 12.6% increase from the same period last year and $1.28 trillion more than pre-pandemic levels.
Despite market volatility driven by high interest rates and geopolitical tensions, corporate financial health has remained strong, showing resilience in the first half of the year. According to Bloomberg data, nearly 1 in 10 non-financial companies in the broader market—over 30 firms—earned more in interest income than they spent on debt expenses in the first quarter. While this figure has remained consistent with the previous year, the interest income generated by these companies has increased by approximately 60%. Mark Cabana, head of US rates strategy for Bank of America Corp.’s securities business, made the following comment about the situation:
“Corporates are earning more money by holding cash. Many companies are comfortable with where the economy is as well as with elevated cash levels because they are getting a return for it.”
Wells Fargo suggested that income investors might consider dividend-paying stocks, noting that US large-cap companies have amassed over $2.4 trillion in cash on their balance sheets and could opt to start or increase dividend payouts.
Our Methodology:
For this article, we began by using a stock screener to find companies with a price-to-free-cash-flow ratio below 15. From this list, we selected companies with a market capitalization of at least $20 billion. Next, we focused on companies with the highest trailing twelve-month operating cash flows, ranking the stocks in ascending order based on their TTM operating cash flows. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A close-up of a hand signing a property casualty insurance product contract.
Cincinnati Financial Corporation (NASDAQ:CINF)
Operating Cash Flow (TTM): $2.58 billion
Cincinnati Financial Corporation (NASDAQ:CINF) is an Ohio-based insurance company that offers property and casualty insurance services to its consumers. The company’s primary business involves issuing insurance policies, such as those for automotive, property, and homeowners coverage. the stock is outperforming the market this year, surging by nearly 44% since the start of 2024.
Cincinnati Financial Corporation (NASDAQ:CINF) reported strong earnings in the third quarter of 2024. The company’s revenue of $3.32 billion showed a significant 83.3% increase from the same period last year. The revenue also beat analysts’ estimates by $790 million. The company reported a property casualty combined ratio of 97.4% for the third quarter of 2024, an increase from 94.4% in the same period in 2023. In addition, net written premiums grew by 17% in the third quarter, driven by price increases, premium growth initiatives, and a higher level of insured exposures.
On November 15, Cincinnati Financial Corporation (NASDAQ:CINF) declared a quarterly dividend of $0.81 per share, which fell in line with its previous dividend. The company holds one of the longest dividend growth streaks in the market, having raised its payouts by 63 consecutive years. The stock’s dividend yield on December 16 came in at 2.13%. With a trailing twelve-month operating cash flow of nearly $2.6 billion, CINF is one of the best cash-rich stocks that pay dividends.
At the end of Q3 2024, 21 hedge funds tracked by Insider Monkey reported having stakes in Cincinnati Financial Corporation (NASDAQ:CINF), compared with 23 in the previous quarter. The consolidated value of these stakes is over $536.5 million. With over 1.1 million shares, Select Equity Group was the company’s leading stakeholder in Q3.
Overall CINF ranks 8th on our list of the cash-rich dividend stocks to invest in now. While we acknowledge the potential of CINF as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CINF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.