Saturday, May 24, 2014

Dividend Growth investment Beazley


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% 

6 comments:

  1. Thanks for sharing info about BEZ. Never heard of it. It's always nice to read about other dividend stocks that fall under the radar of many investors. I happen to own CB and like you like to insurance sector a lot. In fact I added more AFL in May to my holdings. Another great insurer is ORI. You might want to take a look at that one as well. It's true that these days it is hard to find great companies a decent value as valuations have gone through the roof.

    ReplyDelete
    Replies
    1. Hi DivHut,

      Thank you for stopping by! I noticed I have been digging a lot deeper in small cap stocks here in the UK as the current valuations are going through the roof. In the end I guess it ends up being good as I find these gems like Beazley. As the saying goes ""Smooth Seas Never Made a Skillful Sailor".

      Thank you for the tip on ORI, I didn't happen to stumble upon it before but on a cursory look it seems to have a high dividend and a low payout ratio which immediately seems promising. I'll definately look at it in more detail when I have more cash to deploy!

      Best Wishes,
      DividendVenture

      Delete
  2. Hi,

    Found you on Mantra's blog, theres not many UK Divi blogs around so read your with interest, BEZ is a good one been in and out of them a few times over the years when trading but now I'm full time dividends it doesnt fit my profile only because its not a quarterly payer, if it was, I'd still have them.

    Have to comment as anonymous on your blog, for some reason it wont accept Travelswithmymotorbike :)

    Cheers,


    Dave...

    ReplyDelete
    Replies
    1. Hey Travelswithmymotorbike,

      Thanks for the visit! I have noticed indeed that there are not many UK divi blogs so it's really refreshing to see someone knowing about these companies. I'm particularly glad to see that you are also a fan of the company as I have never met someone who heard about the company, it helps hearing about fellow investors appreciating the stock as well.

      Regarding your name not being accepted, that is weird, was it because the name had too many letters?

      Cheers,
      DividendVenture

      Delete
  3. quite a few insurance products and services present discounts to careful drivers The idea have a amazing driving record. Discounts, including insurance bundling discounts AS WELL AS home owner's discounts, furthermore support in reducing the monthly premiums. be sure for you to ask ones insurance representative pertaining to about every one of the discounts It You will be eligible for.trucking insurance

    ReplyDelete
  4. roulette online is definitely an at any time most well-liked workout by means of the net, it could actually be internationally acknowledged and its demand is huge on the net. A lot of online bingo enthusiasts sign up on your term huge world wide web poker for gaining pleasure within the sport most conveniently.

    ReplyDelete