The Zacks Life Insurance industry seeks to benefit from the redesigning and repricing of products and services to maintain sales and profitability, increase automation and improve rate environment. The buoyancy in the industry is further confirmed by its Zacks Industry Rank #39, which places it in the top 16% of more than 251 Zacks industries.
However, with accelerated digitalization, expenses are likely to increase.
Over the past year, the life insurance industry has risen 13.7% compared with the Zacks S&P 500 Composite’s growth of 16.1%. The Finance sector grew 7.9% in the same time frame.
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Given this backdrop, let’s focus on some high-quality dividend-paying insurance stocks like Manulife Financial Corp. MFC, Reinsurance Group of America, Incorporated RGA and Voya Financial, Inc. VOYA, which have attracted investors through consistent dividend hikes.
The life insurance industry comprises companies that offer life insurance coverages and retirement benefits to individuals and groups. The products include annuities, whole and term-life insurance, accidental death insurance, health insurance, Medicare supplements and long-term healthcare policies. Sales benefit from the increasing demand for protection products. The industry also includes companies providing wealth and asset management solutions.
An improving interest rate environment benefits life insurers as their products and investments are rate sensitive. A favorable interest rate, thus, has a positive impact on life insurers' earnings, capital and reserves, liquidity and competitiveness. The Fed has already made four hikes in 2023, taking the figure to 11 since March 2022. Life insurers, the direct beneficiaries of an improving rate environment, are performing well.
Industry players are finding new ways to improve their sales and profitability. Insurers are refraining from selling long-duration term life insurance. Also, life insurers continue to roll out investment products that provide bundled covers of guaranteed retirement income, life and healthcare to cater to customers preferring policies with “living” benefits more than those with death benefits.
A compelling product portfolio will, therefore, aid sales of life insurers. Per Deloitte Insights, life insurance premium is estimated to increase 1.9% in 2023. Per a report by ReporterLinker, global life insurance gross written premium is expected to be $2.5 trillion by 2026.
The life insurance industry started using electronic applications, e-signatures and electronic policy delivery. Carriers have begun selling policies online that appeal to the tech-savvy population. Simultaneously, the use of real-time data is making premium calculation easier and reducing risk. Increased automation is expected to drive premium growth and boost efficiency. Accelerated digitization, robotic process automation, cognitive intelligence and blockchain should help life insurers curb operational costs and aid margin expansion.
How to Pick Stocks With Solid Dividend Payouts?
In order to choose some of the best dividend stocks from the aforementioned industry, we have run the Zacks Stock Screener to identify stocks with a dividend yield in excess of 2% and a sustainable dividend payout ratio of less than 60%. These stocks also have a five-year historical dividend growth rate of more than 2% and a Zacks Rank #1 (Strong Buy) or #2 (Buy) or #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Manulife Financial, with a market capitalization of $36.1 billion, is one of the three dominant life insurers within its domestic market and has rapidly growing operations in the United States and several Asian countries. The insurer’s strong Asia business and expanding wealth and asset management business poise it well for growth. The insurer carries a Zacks Rank #3 at present.
Its current dividend yield of 5.3% is better than the industry’s average of 3.5%. Manulife has a strong track record of delivering progressive dividend hikes. The life insurer’s payout ratio is 44, with a five-year annualized dividend growth rate of 9.2%. (Check Manulife Financial’s dividend history here).
Manulife Financial Corp Dividend Yield (TTM)
Manulife Financial Corp dividend-yield-ttm | Manulife Financial Corp Quote
A robust balance sheet, along with solid operational performance and the company’s outlook for growth, has enabled it to hike its dividend payout. Manulife’s dividend has witnessed a seven-year CAGR of 10%. Its board also approved an 11% hike in dividends for 2023. The company targets 35-45% dividend payout over the medium term.
A solid balance sheet and strong operational performance and the life insurer’s outlook for growth enabled it to hike its dividend payout. MFC’s Asia business is the major contributor to its earnings. New business growth in Asia has been aiding the company’s operational results.
Reinsurance Group of America, with a market capitalization of $10.7 billion, is a leading global provider of traditional life and health reinsurance and financial solutions with operations in the United States, Latin America, Canada, Europe, the Middle East, Africa, Asia and Australia.
RGA has also been managing capital effectively via share buybacks and dividend payments and prudent investments. The insurer’s quarterly dividend payment witnessed an eight-year CAGR (2016-2023) of 10.9%. Its current dividend yield is 2%. In August 2023, RGA increased the quarterly dividend by 6.3%. The insurer’s payout ratio is 19, with a five-year annualized dividend growth rate of 6.2%. (Check Reinsurance Group of America’s dividend history here).
Reinsurance Group of America, Incorporated Dividend Yield (TTM)
Reinsurance Group of America, Incorporated dividend-yield-ttm | Reinsurance Group of America, Incorporated Quote
Reinsurance Group remains well poised to gain from a mix of organic and transactional opportunities. Improving life reinsurance pricing environment and higher investment income bode well. The company carries a Zacks Rank #2 at present. It expects expanded product offerings, underwriting, analytics and innovation to consistently support growth. The insurer expects to remain active in deploying capital into in-force and other transactions and returning excess capital to shareholders through dividends and share repurchases.
Voya Financial, with a market capitalization of $7.5 billion, is a financial services organization that offers a broad range of retirement services, investment management services, group insurance and supplemental health products, primarily in the United States.
The company’s operational excellence has been helping it to deploy capital for enhancing shareholders’ value. In July 2023, VOYA doubled its dividend to 40 cents per share, which demonstrates the company’s confidence in its continued cash generation.
Voya Financial has a five-year dividend growth rate of 71.4%. Its current dividend yield is 2.2%. The insurer’s payout ratio is 19. VOYA expects to return $200 million to shareholders through dividends and share repurchases in the fourth quarter of 2023. (Check Voya Financial’s dividend history here).
Voya Financial, Inc. Dividend Yield (TTM)
Voya Financial, Inc. dividend-yield-ttm | Voya Financial, Inc. Quote
The company’s higher-growth and capital-light core businesses, strategic acquisitions, solid market presence and robust capital position bode well for growth. Voya Financial and AllianzGI's long-term strategic partnership added diversification to the former’s Voya Investment Management segment and continues to deliver outstanding financial results. VOYA continues to strengthen its balance sheet by improving its cash balance.
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