The insurance industry tends to be resilient during economic turndowns and can grow during economic growth or inflation. Typically, insurance companies have consistent revenue, so many of them can afford to pay high dividend yields. Hence, this makes insurance companies an attractive investment opportunity.
Given this backdrop, income investors could consider investing in fundamentally sound insurance stocks such as Prudential Financial, Inc. (PRU), CNA Financial Corporation (CNA), and Lincoln National Corporation (LNC), which have high dividend yields.
Insurance companies operate by collecting premiums from customers upfront, and while some policyholders might never file a claim or only make minor ones, this often leaves insurers with extra funds. They use this surplus for investments, which benefits both the company and its shareholders, leading to steady cash flow and profits.
According to a BBC research report, the global insurance market is set to reach $9.8 trillion in 2027, growing at a CAGR of 12%.
With the growing population and their evolving needs, insurers are expanding their product offerings. Plus, technological advancements such as AI, machine learning, and data analytics are transforming the industry. These technologies enable better risk assessment, enhance customer experiences, and help develop personalized products.
Moreover, AI in the insurance market is expected to grow at a CAGR of 33.1%, reaching around $79.86 billion by 2032. All these factors contribute to a thriving insurance sector, boosting investor confidence and creating a promising environment for growth.
Now, let’s evaluate the fundamental prospects of the above-mentioned stocks in detail:
Prudential Financial, Inc. (PRU)
PRU provides insurance, investment management, and other financial products and services internationally. It operates through five segments: PGIM; Retirement Strategies; Group Insurance; Individual Life; and International Businesses.
On August 20, PRU announced an agreement to reinsure a portion of its guaranteed universal life block with Wilton Re. The terms state that Wilton Re will reinsure approximately $11 billion of reserves backing Prudential’s guaranteed universal life policies. This transaction advances PRU’s strategic progress toward becoming a higher-growth and more capital-efficient company.
On August 06, the company declared a quarterly dividend of $1.30 per common stock, payable on September 12, 2024. With 15 years of consecutive dividend growth, PRU pays an annual dividend of $5.20, which translates to a yield of 4.35% at the current share price. Its four-year average dividend yield is 4.89%. Moreover, its dividend payouts have increased at a CAGR of 5.7% over the past five years.
PRU’s total adjusted operating income before income taxes for the second quarter (ended June 30, 2024) increased 11.1% year-over-year to $1.61 billion, while the PGIM segment reported an adjusted operating income before taxes of $206 million, indicating a 15.1% growth from the prior-year quarter. The company’s attributable net income came in at $1.19 billion and $3.28 per share, up 134.4% and 137.7% year-over-year, respectively.
Analysts expect PRU’s revenue for the third quarter (ending September 2024) to increase 13.8% year-over-year to $13.89 billion, while its EPS for the same period is expected to grow 2.5% from the prior year to $3.53. Moreover, it topped the consensus revenue estimates in three of the trailing four quarters, which is promising.
Over the past year, the stock has surged 24.4%, closing the last trading session at $119.55.
PRU’s stance is apparent in its POWR Ratings. The stock has an A grade for Growth and Momentum. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Among the 26 stocks in the B-rated Insurance - Life industry, it is ranked #18. Click here to see the additional PRU ratings (Value, Stability, Sentiment, and Quality).
CNA Financial Corporation (CNA)
CNA is a global insurance holding company that provides commercial property and casualty insurance products. The company operates through five segments: Specialty; Commercial; International; Life & Group; and Corporate & Other.
On August 29, demonstrating its commitment to returning value to shareholders, the company paid a quarterly dividend of $0.44 per share. CNA pays an annual dividend of $1.76, which translates to a yield of 7.24% at the current share price. Its four-year average dividend yield is 7.35%. Also, the company’s dividend payouts have increased at a CAGR of 4.8% over the past three years.
During the second quarter that ended on June 30, 2024, CNA’s total revenues increased 6.5% year-over-year to $3.52 billion. The company’s core income came in at $326 million, reflecting an increase of 5.8% from the prior-year quarter. In addition, its net income amounted to $317 million and $1.17 per share, reflecting an increase of 12% and 12.5% year-over-year, respectively.
The consensus revenue estimate of $3.57 billion for the fiscal third quarter (ending September 2024) represents a 7.1% increase year-over-year. The consensus EPS estimate of $1.15 for the same quarter indicates an 8.8% improvement year-over-year.
The stock has gained 31.1% over the past year and 21.7% over the past nine months to close the last trading session at $51.95.
CNA’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
CNA has an A grade for Momentum and Stability. It is ranked #14 out of 55 stocks in the A-rated Insurance - Property & Casualty industry. Click here to see the other ratings of CNA for Growth, Value, Sentiment, and Quality.
Lincoln National Corporation (LNC)
LNC is a holding company that operates multiple insurance and retirement businesses through subsidiary companies. It operates through four segments: Annuities; Life Insurance; Group Protection; and Retirement Plan Services. The company distributes its products through consultants, brokers, planners, agents, financial advisors, third-party administrators, and other intermediaries.
On August 22, buoyed by strong financial performance, the company declared a quarterly dividend of $0.45 per share, payable on November 01, to the shareholders of record on October 10, 2024.
LNC pays an annual dividend of $1.80, which translates to a yield of 5.72% at the current share price. Its four-year average dividend yield is 4.70%. Moreover, the company’s dividend payouts have increased at an impressive CAGR of 4.6% over the past five years.
On August 06, LNC enhanced its Lincoln PathBuilder Income® product by adding a lifetime income guarantee to its asset allocation fund. This upgrade, part of Lincoln’s broader suite of guaranteed income solutions, offers greater flexibility and customization for plan sponsors and participants. This development will likely increase LNC’s appeal in the retirement planning market and boost its revenue potential.
For the second quarter of 2024, which ended on June 30, LNC’s revenues increased 75.9% year-over-year to $5.15 billion. Its net income available to common stockholders stood at $884 million, up 76.1% year-over-year, while its net income available per share amounted to $5.11, representing an increase of 73.8% from the last year.
Street expects LNC’s revenue for the fiscal fourth quarter (ending December 2024) to increase 137.3% year-over-year to $4.67 billion. Moreover, its EPS estimate of $1.79 for the same period indicates a 23.3% year-over-year growth.
Over the past nine months, LNC shares have surged 27.7% to close the last trading session at $31.47.
LNC’s mixed fundamentals are reflected in its POWR Ratings. The stock has an A grade for Momentum and B for Value. It is ranked #25 out of 26 stocks in the B-rated Insurance – Life industry.
Beyond what is stated above, we’ve also rated LNC for Growth, Stability, Sentiment, and Quality. Get all LNC’s ratings here.
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PRU shares were trading at $117.85 per share on Thursday afternoon, down $1.70 (-1.42%). Year-to-date, PRU has gained 17.57%, versus a 16.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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