What attracts the attention of media and social media watchers when it comes to investing in stocks? Generally, the focus will be on exciting new products that have the potential to be life-changers for many Americans or those whose stock price can expect to rise to the moon in the foreseeable future. But then there are stocks like Travelers Companies that is about as glamorous as a stack of copy paper, yet is exactly what the doctor ordered when it comes to bringing stability to an otherwise risky investment portfolio. According to Yahoo! Finance, Travelers is in the top six when it comes to buying the stock of insurance companies for the purpose of reaping solid dividends. Did you know that Travelers is one of the stocks that comprise the Doe Jones 30 Industrials? Despite all these glaring advantages, all too many investors either completely ignore the stock or are unaware of its existence.
What is it?
The first question to ask is what is it exactly that Travelers does? There are many types of insurance and insurance companies. Travelers focus is in the area of property and casualty insurance both on the commercial and personal ends. In simpler terms, when something very bad goes wrong such as floods, wildfires, or hurricane damage, companies such as Travelers will be paying out a whole lot of money. Since no one can predict the future, not even the actuaries, an investor needs to know a good deal about the company and its history. To this end, Travelers has been around for about 150 years, and it has paid a dividend almost every one of those years. When you consider it survived the Great Depression and a number of severe recessions and still managed to pay out a dividend, long term investment is definitely the label attached to this stock. Last year the company was able to generate just over $1.75 billion in revenue, reaching a $6.77 Earnings per Share value for the year.
One factor that impacts companies who have significant investments in fixed income investments is the Fed rate. Though it has moved up at a snail’s pace over the past decade, it is not expected to stay there indefinitely. There is no doubt that this snail’s pace has negatively impacted Travelers profits, as between 70 and 80 percent of their investment portfolio is fixed-rate investments. The lower the Fed rate, the lower the return on their fixed rate assets, which generally mature in about four years. However, as has been previously stated, the Fed rate by historic standards cannot be expected to stay at these low levels forever, and it is here where the future potential of the company lies. From an investor’s perspective, any investment carries a certain amount of risk with it, so the vagaries of natural disasters and the like can be expected to create some amount of havoc over the stock price in the future. But as often is the case, the primary issue is the survival of the company through extreme economic times is the tale of the tape. Not only has Travelers held up, but it has profited it, stockholders, year after year.
What Does it Do?
Investors also need to consider one of the stock strategies Travelers is using to shore up its stock price and reward its faithful investors. Over the last 10 years it has been repurchasing its own stock. The last nine years alone have seen the number of shares of its stock cut almost in half. From a corporate investment perspective, this is a very highly aggressive strategy and one that seems to be paying off for both the company and its faithful investors. Even if you are only a beginning investor you have heard the name, Warren Buffett. Buffett has recently stated his preference for insurance stocks, so looking into a Dow 30 selection like Travelers only makes investment sense. For the record, Buffett himself owns 2.3% of Travelers, a cash investment that exceeds $850 million. It is worth knowing that while Buffett’s own list of companies does not like paying out dividends, his own portfolio is awash with companies that pay him dividends.
Should you be someone who prefers U.S.-based companies to invest with, Travelers is your ticket. Not only is the company based in the United States, but a sizeable portion of its premiums also originate from U. S. companies and individuals. If you are tempted to say that how the U. S. economy goes, so Travelers goes, you are not very far off. Two points we discussed earlier were the Earnings per Share and the annual dividend of the company. To illustrate the power of Travelers as a dividend stock we will use a hypothetical scenario, though many investors can easily identify with it. The majority of stocks will end up at the end of the year with something like a stock price that has gone up 5% and they receive an annual dividend that is maybe 5% of its stock price. In round numbers, a stock that was bought at the beginning of the year at $20 will see an earnings per share of $1, and an annual dividend of about $1.25.
The Good News
Moving back into the real world, Travelers dividends have exceeded its Earnings per Share over the past decade. If you are an investor that likes 10 percent annual returns in dividends, it is worth your time to start looking into Travelers. The numbers show that Travelers has managed to double its dividends every 12 years since 1993. Remember, that time period includes the Great Recession. From all that has been said it might be easy to come to the conclusion that Travelers is a solid dividend stock every investor should own. But the reality is that the fast-paced 21st century has many people impatient, and waiting 12 years to see the value of a stock is unnerving. Some people look out their window and see one natural disaster after another, naturally assuming insurance companies will continue to take some major hits. However, if you simply look at the recent numbers of Travelers, you will see a stock that has a lot of upside potential, both in its future dividend payouts and its price per share.
Written by Bill Vix
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