Since it has been a while since my last investment update, this buy actually dates back a few weeks, but for any readers interested in the company it should be fine, as the stock has been beaten down since.
Beazley (BEZ) is a small-cap property and casualty insurer listed in London. The insurance sector is a sector that highly interests me, as these companies have quite depressed valuations. As a side note for the US-based readership, Chubb Corporation (CB) is an interesting dividend aristocrat listed in New York that operates in the property and casualty insurance industry listed in the US.
P&C Insurance is far from a stable industry when it comes to earnings. In years with no catastrophes these companies will be swimming in cash, while in catastrophic years they will be struggling to meet all the claims. This is the reason why I have chosen Beazley (BEZ) from amongst it's competitors, they have managed to be profitable (achieve positive earnings) every single year since the company's inception. On top of this, the company presents a great performance, with no debt at all, return on equity around or higher than 20% and moderate to strong yearly EPS growth.
Additionally, they are surprisingly diversified for a company of this size, both geographically and in terms of business lines:
The main reason for the depressed valuations in this sector are the low interest rates. Insurance companies make money in two ways: One is the difference between the insurance premiums they receive and the claims they have to pay. The other is the investment income they earn by investing the premiums in conservative investments (eg. bonds) while they wait for claims. Usually these companies, make the most of their yearly earnings through the second approach and so, when interest rates are low, their earnings are low.
In the case of Beazley, not only do they have good performance in a low-interest rate environment, but they are also very efficient at making money from the first approach, the difference between premiums and claims. They managed to have a positive balance on this metric consistently for years. Meaning that, in the case of an interest rate increase, even though their investments will lose value, they won't need to sell them to pay their claims.
Regarding the dividend, they have a fairly unique approach which I appreciate very much. For starters, they have paid a dividend for 11 years and they have increased the dividend every year. Now the interesting part is they keep the dividend raises fairly modest (around 4-5%) due to the instability of the earnings growth, but to compensate for that, they pay very hefty special dividends in good years. This ensures that the payout ratio remains low while the shareholders are well rewarded.
All in all, I am very happy with this buy and intend to add consistently over time.
Stock Price: 4.14$
Dividend Yield: 3.6%
Dividend Raise Streak: 11 Years
Typical Yearly Dividend Growth (5yr): 4.5%