We recently compiled a list of the 8 Best Value Dividend Stocks to Invest in According to Warren Buffett. In this article, we are going to take a look at where Chubb Limited (NYSE:CB) stands against the other dividend stocks.
Many experienced economists and investors today take inspiration from Warren Buffett’s strategies. His focus on value investing played a key role in building his fortune. This investment philosophy involves purchasing undervalued stocks or businesses when market sentiment drives prices lower and holding them for the long term. Buffett has made some of his most successful investments by capitalizing on opportunities when others were selling out of fear.
Value investing remains one of the most widely used investment strategies, having generated substantial returns over time. A report from Bank of America highlighted its long-term success, showing that since 1926 through 2023, value stocks have delivered a total return of 1,344,600%, significantly outperforming growth stocks, which have returned 626,000% over the same period.
Also read: 8 Unstoppable Dividend Stocks to Invest in
Lowell Miller’s book, Single Best Investment, highlighted the insights of Fama and French on value investing, referencing their published works in the Journal of Finance. Here are some remarks by Nobel laureates:
“Firms that the market judges to have poor prospects, signaled by low stock prices and low price/book ratios, have higher expected stock returns . . . than firms with strong prospects.”
The book highlighted that when a growth stock does not live up to investors’ high expectations, they come to realize that its price was inflated, often resulting in a sharp decline. In contrast, value stocks, which generally have lower expectations, can exceed predictions, leading to a positive reassessment of their price. However, the book also stresses the importance of diversification, as relying too heavily on a single investment can be risky. Historically, maintaining a diversified portfolio has been a prudent approach for investors.
According to a report by BlackRock, value stocks can serve as a buffer in a shifting market environment. A recent example was the broad market downturn in 2022, where steep declines in growth stocks were somewhat balanced by smaller losses in value stocks. By definition, value stocks trade at lower prices compared to growth stocks, though the extent of this discount has varied over time.
An analysis of the broader market’s growth and value stocks suggests that valuations would need to climb by more than 40% to bring value stocks back to their long-term median levels. This indicates significant upside potential if value stocks begin to recover, particularly as high valuations in growth stocks may encourage investors to shift toward value as the market expands its focus beyond mega-cap companies. While past performance does not guarantee future results, history offers some perspective. The last time the valuation gap between the Russell Growth and Russell Value indexes was as wide as it is today—back in December 2000—value stocks went on to outperform growth stocks over the following one-, three-, and five-year periods, the BlackRock report further highlighted.
In addition to focusing on value stocks, Buffett allocates a significant portion of his investments to dividend-paying companies. By the end of the third quarter of 2024, the majority of companies in his portfolio not only distributed dividends to shareholders but also had a consistent history of maintaining and growing those payouts. In this article, we will take a look at some of the best value dividend stocks according to Warren Buffett.
Our Methodology:
For this article, we analyzed Berkshire Hathaway’s 13F portfolio as of the third quarter of 2024 and picked dividend stocks. From that list, we selected stocks that have forward price-to-earnings (P/E) ratios below 21 as of January 28. A low P/E ratio indicates that a stock or an investment is relatively undervalued in the market. The stocks are ranked in ascending order of their forward P/E ratios as of January 28. We also considered hedge fund sentiment around each stock using Insider Monkey’s data for Q3 2024.
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)
Forward P/E Ratio: 11.38
Chubb Limited (NYSE:CB) is an American insurance company that offers a wide range of insurance products, including property and casualty, life insurance, and reinsurance, with operations across 54 countries. Although more than half of its premiums come from the United States, the company’s global presence helps protect it from regional disasters, contributing to its resilience.
Since CEO Evan Greenberg took charge in 2004, Chubb Limited (NYSE:CB) has built a strong and stable leadership team. Greenberg’s disciplined approach to underwriting has been key to the company’s success, ensuring that premiums are set accurately to manage risk while keeping customers satisfied. This strategy is reflected in the company’s combined ratio, a key insurance metric, which has consistently stayed under 100%. A ratio below 100% indicates that Chubb earns more from underwriting than it pays out in claims, demonstrating the effectiveness of its risk models. Maintaining this ratio for over 20 years highlights the company’s competitive advantage and operational excellence.
Chubb Limited (NYSE:CB) distinguishes itself by catering to high-income clients, particularly in the homeowner insurance market. Wealthier individuals tend to maintain their spending and continue paying premiums even during mild economic downturns, providing the company with greater stability. In the third quarter of 2024, the company reported a net income of $2.32 billion, reflecting a 13.8% increase compared to the same period the previous year. For Q3, the company posted an operating cash flow of $4.55 billion, with a trailing twelve-month operating cash flow of $14.8 billion. This strong cash position has enabled the company to increase its dividend payouts for 31 consecutive years. The stock has a forward P/E ratio of 11.38, which makes it one of the best value stocks according to Warren Buffett. The company currently pays a quarterly dividend of $0.91 per share and has a dividend yield of 1.34%, as of January 28.
Chubb Limited (NYSE:CB) was included in 51 hedge fund portfolios at the end of Q3 2024, up from 46 in the previous quarter, as per Insider Monkey’s database. The stakes owned by these funds are worth more than $10 billion in total.
Overall CB ranks 3rd on our list of the best value stocks according to Warren Buffett. 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.