When it comes to investing in the stock market, there are literally thousands of options. You will first need to decide what type of investment you are interested in. For some, this entails taking the risk associated with buying shares in the anticipation that the price will increase quickly and can be sold for a profit. The downside to this is that the share price can also dramatically, leaving you cash short. Others are income investors. They are not as concerned with a rapid increase in the price of the stock, as they are going to hang onto it for the long term. Income investors are looking for companies that have a history of paying dividends on a consistent basis. This allows them to keep their shares, while be assured that they will receive a per share return once of several times a year. Cincinnati Financial has long been considered a solid long term dividend stock, and it still worthy of your consideration. Here are some reasons why that is the case.
The Basic Details
When you look for a dividend stock, you want to take a glance at the companies history. When you do this with Cincinnati Financial, you will quickly discover that they have paid out a dividend on an annual basis for 58 straight years. This puts it in a select class of stocks on the S&P 500 Index that has paid out dividends for at least 25 straight years. It is also just one of 25 companies that have paid out dividends for more than 50 straight years. This is rather impressive because you cannot miss a dividend payment even once during those five decades to remain on that list. The track record for long term dividend payments with this company is rather impressive, to say the least. While there are some concerns that the valuation of the company has expanded far too rapidly in recent years to keep up with its growth rate, income investors should still not be swayed. This is a stock that will provide solid income potential for years to come.
The Business Explained
Cincinnati Financial is in the insurance sector. It was founded back in 1950 and has been on a consistent pattern of growth ever since. It offers a variety of insurance products for business, home, and auto. In addition, you will find that this company offers a number of financial products within its portfolio as well. This includes life insurance, annuities, and property and casualty insurance. The company is licensed to sell products in 42 states, positioning it well for increased growth. As long as people need insurance, the company should continue to do well. Overall, the business model that Cincinnati Financial has employed has proven to be profitable. They do not focus only on products that are considered to be high margin. In fact, they will write lower margin policies as a way to increase revenue over the long run. This has enabled the company to earn consistently high profits by issuing large numbers of policies and taking over a noticeable share of the market. As an insurance company, Cincinnati Financial makes its money primarily in two different ways. It will earn a premium on any policy that is written. In addition, the company invests much of the money it has floating around in the form of premiums that have not been paid out as a claim. Because of these two primary methods of earning a profit the company has enjoyed a steady trajectory of growth since its formation. In addition, there are really no reasons to see why it cannot continue to grow in the decades to come.
Outlook for Growth
Since we all know that companies must continue to earn profits in order to pay out dividends, income investors will want to see that the company has a plan for sustained growth. While the history of 58 straight years of dividend payments is impressive, income investors also would like to see a plan for the future that will allow those payments to continue. It can be said that Cincinnati continues to enjoy a positive growth outlook for the long term. Much of this growth will come in the form of new insurance policies that are written. Since the company has proven throughout its history that it is able to write many new policies on an annual basis, it can be said that its growth outlook in this area is possible.
There are also price increases that help this company to enjoy sustained revenue. This increases earnings, which adds to its ability to pay dividends every year. In addition, with interest rates rising as of late, Cincinnati Financial has been able to earn more revenue for the money that it has in its investment portfolio. The past year indicates strong performance on the part of the company once again. Revenue increased roughly 36 percent in one quarter, which amounts to an impressive $1.91 billion. Money earned from premiums increased just over 4 percent, accounting for $1.3 billion. This allowed for earnings per share of $0.84. This was up 45 percent over the previous year, and it beat industry estimates by roughly $0.11. This indicates yet another reason why Cincinnati Financial is such a solid long term dividend stock.
Many income investors might be hesitant relying on a company in such a competitive industry as insurance for consistent dividends. Cincinnati Financial, however, is not just any insurance company. It has name recognition and a solid following around the country. It has also demonstrated an uncanny ability to solicit new premiums every year since its inception in 1950. This is a solid growth indicator that should please income investors. While there are some signs of worry, such as decreased earnings during the recession, the reality is that the company still pays dividends even in those down years. This is likely to continue, so count on this as a long term dividend stock worthy of consideration.