Cincinnati Financial Corporation (CINF): Over 50 Consecutive Years of Dividend Growth and a 3.4% Yield

Dividend Growth Score

Our Growth Score answers the question, “How fast is the dividend likely to grow?” It considers many of the same fundamental factors as the Safety Score but places more weight on growth-centric metrics like sales and earnings growth and payout ratios. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.

CINF’s dividend Growth Score of 74 suggests that the company’s dividend has above average growth potential. CINF has raised its dividend for 54 straight years and is a member of the dividend aristocrats list and the dividend kings list. Fewer than 10 U.S. public companies have achieved such a lengthy dividend growth streak, putting CINF in quite the exclusive club.

The company has increased its dividend by 3-5% per year over the last five years but most recently rewarded investors with a special dividend in December 2015, resulting in 30% total dividend growth in 2015.

Source: Simply Safe Dividends

Going forward, however, we would expect dividend growth to match earnings growth, which will likely remain in the mid-single digits.

Valuation

CINF trades at 16x forward earnings and has a dividend yield of 3.4%, which is below its five year average dividend yield of 4.0% but not bad for investors living off dividends in retirement. The company also has a price to book ratio of 1.4, which is higher than its peer group’s average ratio of 1.2.

For a mature insurance business, CINF appears reasonably priced today but is not a bargain. We think the company can continue growing its revenue by 3-4% per year as it adds more agencies and new lines of insurance products (e.g. tailored policies for high network individuals; reinsurance).

With a reasonable amount of operating leverage and potentially some help from higher interest rates over the next 5-10 years, earnings per share could compound at a mid- to upper-single digit rate, resulting in total return potential of 8-10% per year.

Conclusion

Cincinnati Financial Corporation (NASDAQ:CINF) is a well-managed insurance business that has been a sound bet for safe, growing dividend income for more than half a century. The insurance industry experiences its fair share of performance cycles, but CINF has proven to be a disciplined risk taker with both its underwriting and investment portfolio. Overall, we think this blue chip dividend stock remains a reasonable bet for income investors.

Disclosure: None