We recently compiled a list of the 10 Best GARP Stocks That Pay Dividends. In this article, we are going to take a look at where Chubb Limited (NYSE:CB) stands against the other GARP stocks that pay dividends.
Over the past year, the market has highlighted the importance of diversifying portfolios to manage risk. Selecting stocks that perform well under various economic conditions has consistently been a challenge for investors, as strategies that work in one market may not work in another. For instance, growth and value stocks have shown different performance trends in various market conditions, making both approaches appealing to investors. Combining elements of both strategies can provide a refreshing alternative to traditional investment plans. This is where the GARP strategy comes into play. Growth at a Reasonable Price (GARP) is an investment strategy that focuses on finding companies with strong, sustainable earnings growth and appealing valuations in relation to their growth potential. These companies are often in sectors with positive growth trends or have competitive advantages that position them for future success.
The GARP strategy, popularized by Peter Lynch, aims to strike a balance between growth and value investing by avoiding the extremes of either approach. It focuses on finding growth stocks that have relatively low price-to-earnings ratios under typical market conditions. When these stocks are identified successfully, they can offer strong returns for investors. Historically, the GARP Index has outperformed its benchmark by tracking companies that demonstrate consistent fundamental growth, reasonable valuations, and strong earnings potential.
Also read: 10 Cheapest Dividend Aristocrats to Buy Now
The strategy has gained popularity not just in the US, but also globally. After Global X launched the first global broad-based index exchange-traded fund (ETF) in Australia using the GARP framework in September 2024, the strategy delivered strong early-stage performance. According to a Global X report, while global equity markets experienced a rally towards the end of 2024, the GARP stocks outperformed the broader market and other factors like quality, rising approximately 20% since the ETF’s launch. The report also noted that GARP’s success wasn’t driven by technology, but rather by broader sectors such as consumer goods, financials, and communication.
Analysts globally are also advocating for the GARP strategy. For instance, Brian Belski, chief strategist at BMO Capital, recommended that Canadian investors adopt the GARP approach this year. Here are some comments from the analyst:
“Growth at a Reasonable Price (GARP) remains one of our key style preferences for Canadian equities. Furthermore, earnings growth and revision trends are broadly consistent with the market, suggesting there are likely many opportunities developing in Canada to implement a growth at a reasonable price strategy.”
In the US, a report from S&P Dow Jones Indices revealed that the GARP Index delivered an average annual return of 13.2% from June 1995 to June 2019, outperforming the broader market’s 9.81% growth. Over the same period, the market’s Growth Index and the Enhanced Value Index returned 10.41% and 11.83%, respectively. The report also highlighted that the GARP Index achieved better risk-adjusted returns compared to both the growth and value indices during this time frame.
A CNBC report also highlighted insights from BMO’s analysts regarding investment strategies to navigate market uncertainties in the U.S. According to the report, investors should consider the GARP approach alongside dividend growth strategies in the current financial landscape. Dividend stocks have historically performed well during inflationary periods, making them a favored choice among investors. Given this, we will take a look at some of the best GARP stocks that pay dividends.
Our Methodology
GARP stocks have reasonable valuations and strong growth potential, which means that their P/E ratios are not necessarily as low as value stocks. For this article, we used the GARP Index (SPXGARPP) and identified dividend stocks from the list. From that group, we picked 10 dividend companies with the highest number of hedge fund investors, according to Insider Monkey’s database of Q3 2024. These stocks were ranked based on the number of hedge funds having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A close-up of an insurance agent’s hand pointing to a marine insurance policy, highlighting the company’s expertise in marine coverage.
Chubb Limited (NYSE:CB)
Number of Hedge Fund Holders: 51
Chubb Limited (NYSE:CB) ranks seventh on our list of the best GARP stocks that pay dividends. The multinational insurance company offers a wide range of insurance products, including property and casualty, life insurance, and reinsurance.
Chubb Limited (NYSE:CB) has delivered consistent growth over the years. Between 2016 and 2023, the company achieved a compound annual growth rate (CAGR) of 7% in revenue, while its earnings per share grew at a CAGR of 14%. This steady expansion persisted despite challenges such as the pandemic, geopolitical tensions, inflation, and rising interest rates that disrupted the broader economy. A key factor behind this resilience is that most customers are unlikely to cancel their insurance policies just to cut costs. While economic downturns can temporarily limit pricing power, leading insurers are typically able to withstand such short-term pressures.
That said, Chubb Limited (NYSE:CB) is experiencing a setback due to recent wildfire losses, which are expected to reduce free cash flow by $1.5 billion. However, it has a strong track record of handling significant losses, including those from Hurricane Ian and Hurricane Milton, demonstrating its ability to effectively manage such challenges.
In addition, Chubb Limited (NYSE:CB) has a solid cash position, generating $4.57 billion in operating cash flow. The company also returned about $1.1 billion to shareholders through dividends and share repurchases. It stands out as one of the top dividend stocks, having consistently increased its payouts for 31 consecutive years. Currently, it pays a quarterly dividend of $0.91 per share and has a dividend yield of 1.38%, as of February 14.
Overall CB ranks 7th on our list of the best GARP stocks that pay dividends. While we acknowledge the potential for CB as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.