The board of directors of RLI Corp. RLI recently approved a hike in the company’s quarterly dividend to enhance shareholder value. RLI will now pay out a dividend of 27 cents per share compared with 26 cents paid in February 2023, reflecting an increase of 3.8%. Shares of RLI have gained 0.5% in the last trading day.
Shareholders of record as of May 31, 2023 will receive the increased dividend on Jun 20, 2023. Based on the closing share price of $136.59 on May 4, the raised payout represents a dividend yield of 0.7%, better than the industry average of nearly 0.3%. Prior to this, the insurer had raised its quarterly dividend by 4% to 26 cents per share last May.
RLI has been paying dividends for 186 consecutive quarters and increased regular dividends in the last 47 straight years, at an eight-year (2016-2023) CAGR of 3.8%.
In addition, the insurer has also been paying special dividends since 2011.
The recent approval of $7 in special dividend in November 2022 marks the 13th straight special dividend. Over the last 10 years, the insurer has returned $1.37 billion to shareholders and the quarterly dividend has grown an average of 5% per year. RLI did not repurchase any shares so far in 2023. It has $87.5 million of remaining capacity from the repurchase program.
The dividend increase is supported by the insurer’s strong capital structure. Its healthy balance sheet with unparalleled financial flexibility allows investment in the business. RLI Corp. has a sound capital structure, helping it meet the interests of its policyholders, enhance operations in the insurance sector and aid growth in its book value for the long term. RLI maintains a conservative underwriting and reserving policy and continues to achieve favorable reserve releases from the prior years. Such a robust capital position provides significant financial flexibility to the operating subsidiaries.
In the first quarter of 2023, RLI reported solid operating results and its financial position remained strong. Operating cash flows in the first quarter of 2023 benefited from increased premium receipts.
RLI expects the cash generated by operations and investments to provide sufficient sources of liquidity to meet the anticipated needs over the next 12 to 24 months. The insurer also maintains a revolving line of credit, which has a borrowing capacity of $100 million. This facility, entered into during the first quarter of 2023, replaced the $60 million credit line that expired in March 2023. Under certain conditions, the line may be increased up to an aggregate principal amount of $130 million.
Return on equity, a profitability measure of how efficiently a company utilizes its shareholders money, is 19.2% in the trailing 12 months, better than the industry average of 6.6%. The metric expanded 250 basis points year over year.
Shares of this Zacks Rank #1 (Strong Buy) P&C insurer have outperformed the industry in the past year. The stock has gained 15.1%, outperforming the industry’s increase of 3.2%. We expect improvement in the top line and a solid capital position to drive shares in the near term.
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Given the solid capital level of the insurance industry and improving operating backdrop favoring strong operational performance, insurers like The Travelers Companies, Inc. TRV, American Financial Group, Inc. AFG and CNO Financial Group, Inc. CNO have resorted to effective capital deployment to enhance shareholder value.
The Travelers boasts a strong market presence in auto, homeowners’ insurance and commercial U.S. property-casualty insurance with solid inorganic growth. In April 2023, the board approved an 8% increase in its quarterly dividend to $1 per share, marking 19th consecutive years of dividend increase. TRV has a dividend yield of 2%, better than the industry average of 0.3%. Over the past five years, TRV has increased its dividend six times and its payout ratio presently stays at 30% of earnings.
American Financial’s board of directors approved a special cash dividend of $4.63 per share for the first quarter, which includes a $4 per share special dividend paid in February. In addition, American Financial bought back shares worth $24 million in the reported quarter. AFG has a dividend yield of 2.1%, better than the industry average of 0.3%. The excess capital of AFG provides the financial flexibility to make opportunistic repurchases, pay additional special dividends and grow specialty property and casualty business organically and through acquisitions and start-ups.
In May 2023, CNO Financial’s board approved a 7.1% increase in its quarterly dividend to 15 cents per share, which marked its 11th consecutive annual increase. The board also approved an additional $500 million to repurchase the company's shares. It currently yields 2.6%. CNO Financial has been raising its quarterly dividend since 2013. It is committed to deploying 100% of excess capital, which should attract investors’ attention. At the first quarter-end, CNO had remaining repurchase funds of $171.8 million.
Shares of TRV and CNO have gained 6% and 1.3% in the past year, respectively, whereas AFG has lost 19.7%.
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