Thursday, April 3, 2008

CB Dividend Analysis

The Chubb Corporation, through its subsidiaries, provides property and casualty insurance to businesses and individuals. The company operates through three segments: Commercial Insurance, Specialty Insurance, and Personal Insurance.
The company is a dividend aristocrat as well as a major component of the S&P 500 index. It has been increasing its dividends for the past 42 consecutive years. From 1998 up until 2007 this dividend growth stock has delivered an annual average total return of 6.70 % to its shareholders.
At the same time company has managed to deliver an impressive 14.35% average annual increase in its EPS since 1998. Earnings per share was affected in 2000 and 2001 but managed to bounce off their recessionary lows.

The ROE fell to less than 2% in 2001 from 12% in the late 1990’s before increasing to just under 20% over the past couple of years.

Annual dividend payments have increased over the past 10 years by an average of 7.20% annually, which is significantly below the growth in EPS. A 7% growth in dividends translates into the dividend payment doubling almost every 10 years. If we look at historical data, going as far back as 1984, CB has actually managed to double its dividend payments every eight years.

If we invested $100,000 in CB on December 31, 1997 we would have bought 2785 shares (Adjusted for a 2:1 stock split in April 2006). In March 1998 your quarterly dividend income would have been $431.68. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend income would have risen to $988.90 by December 2007. For a period of 10 years, your quarterly dividend income has increased by 87 %. If you reinvested it though, your quarterly dividend income would have increased by 129%.

The Dividend Payout Ratio spiked to over 200% in 2001 from the low 30’s% in the late 1990’s before falling to less than 17% over the past couple of years. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings. Another plus for CB is that the company did not suspend or cut its dividend in 2000 and 2001 when earnings decreased significantly.

I think that CB is attractively valued with its low price/earnings multiple of 7.30 and above-average yield at 2.60%.

Disclosure: I own shares of CB
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