Cincinnati Financial Hikes Dividend - Analyst Blog

Property and casualty insurer Cincinnati Financial Corp. (CINF) on Monday announced a 0.5 cent increase in quarterly dividend to 40 cents per share. The increased dividend will be paid on October 15, 2010 to shareholders of record as of September 22, 2010.

On the basis of the increase, the stock of Cincinnati Financial has an attractive dividend yield of approximately 6%. Management has raised dividend in each of the past 50 years, with an average growth of 6% annually for the past five years.

The continuous dividend payment is supported by Cincinnati ’s strong capital and continuous cash flow generation. In addition, low levels of debt in its capital structure (15% at the end of 2009, 16.7% at 2008 and 12.7% at 2007) provide strength.

Cincinnati has been facing a compression in the top line over the past five years, mainly due to soft market pricing. The compounded annual growth rate of net written premiums was a negative 0.6% over the five-year period 2005 through 2009.

However, the Board of Directors is committed to rewarding shareholders directly through cash dividends and through share repurchases. We appreciate the company for its efforts to maintain the trend even after an economic beating. In its latest quarterly filing, the company announced its intention to keep increasing dividends in future years as well.

Management is also striving to improve top-line growth through various strategic measures such as appointing new agencies and entering new geographic markets.

However, Cincinnati’s Commercial Lines segment, which accounted for 75% of 2009 net written premiums, is still experiencing very strong competition, making it difficult to increase prices. This trend is expected to continue until the fragile economy picks up significantly.