Friday, July 15, 2011

Chubb (CB) Dividend Stock Analysis 2011

The Chubb Corporation (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. Chubb is a dividend aristocrat which has paid uninterrupted dividends on its common stock since 1902 and increased payments to common shareholders every year for 46 years.

The most recent dividend increase was in 2010, when the Board of Directors approved a 5.40% increase to 39 cents/share. The largest competitors of Chubb include Berkshire Hathaway (BRK.B). Cincinnati Financial (CINF) and Travelers Corp (TRV).

Over the past decade this dividend growth stock has delivered an annualized total return of 7.40% to its loyal shareholders.

The company has managed to deliver an increase in EPS of 10.90% per year since 2005. Analysts expect Chubb to earn $5.60 per share in 2011 and $5.85 per share in 2012. In comparison Chubb earned $6.76 /share the company earned in 2010.

The company has been able to increase its return on equity from 2% in 2001 to 14% by 2010. The reason for the massive increase was due to the depressed state of earnings in 2001- 2002. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 8.30% per year over the past decade, which is much higher than the growth in EPS. I expect future growth in dividends to be closer to 10% over the next decade.

An 8% growth in distributions translates into the dividend payment doubling almost every nine years. If we look at historical data, going as far back as 1984, we see that Chubb has actually managed to double its dividend every eight years on average.

Over the past decade the dividend payout ratio has remained below 50%, with the exception of 2001 and 2002. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently Chubb is trading at 8.80 times earnings, yields 2.50% and has a sustainable dividend payout. The stock is attractively valued per my entry criteria which is why I would consider adding to my position in the stock subject to availability of funds.

Full Disclosure: Long CB

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  1. Thank you for the analysis. I have a couple of questions.

    What are you looking for in RoE? Your article mentions stable rather than absolute numbers. However a shift from 2% to 14% doesn't seem stable.

    Lastly, as someone interested in getting started in dividend growth invensting. Where would you recommend going to get the raw data for research like this? That way we can cruch the numbers on other stocks that we might be interested in?

    Thank you again for your blog, look forward to following your posts.

  2. Great info. Minor error near the beginning when you say "Cincinnati Financial" rather than Chubb. You can delete this comment after you fix it, so no one need know.

  3. Great analysis! This is a company that I haven't gotten around to analyzing. I will look into it further!

  4. I'm long Chubb too. For insurance in my portfolio, I've selected HGIC and CB. CINF and AFL are solid picks in my view as well.


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