As expected, the Fed cut the interest rate by 25 basis points to a target range of 4.25-4.50%, representing a full 1% drop since September. This marks the third rate cut since September this year as the inflation rate is expected to move to its desired 2% benchmark. However, the Fed now expects inflation to be at 2.5% through next year. Though there should be more cuts next year, as the Fed wants to take the rate between 3.75% and 4% by the end of 2025, the magnitude and the number of cuts is now anyone's guess.
Thus, investors always look for a safe haven that ensures a steady return. Insurers like Unum Group UNM, Cincinnati Financial CINF, American Financial Group AFG, Radian Group RDN and Voya Financial VOYA, with their impressive dividend history, are always on their favorites list.
Factors Favoring Insurers in 2025
According to the Fed's December Economic Projections, GDP in 2025 is pegged to grow by 2.1%, while the unemployment rate is likely to be 4.3%, both metrics improving from its September projection. Given the economic expansion, the insurance industry is well-poised for growth. The insurance industry has returned 26.1% year to date compared with the Finance sector’s growth of 16.1% and the Zacks S&P 500 composite’s rise of 24%, despite an active catastrophe environment and rate cuts, the industry has outperformed. Prudent pricing and underwriting, exposure growth and accelerated digitalization added to the outperformance.
YTD Price Performance
Zacks Investment Research
Image Source: Zacks Investment Research
Investment income is an important contributor to insurers’ performance. They invest a portion of their premiums. Thus, insurers are direct beneficiaries of a rising rate environment. With a lower rate of return, investment income will suffer. However, a broader invested base will limit the downside.
Per Deloitte 2025 global insurance outlook, waning claim severity and growth in written premiums should drive non-life insurers’ performance. Life premiums are expected to improve 1.5% through 2025 in advanced markets. Strong sales in emerging markets like China, India and Latin America could potentially boost premiums by 5.7% in 2025.
Despite soft pricing, analysts at Swiss Re Institute predict premiums to grow 4.5%. Insurance Information Institute and Milliman expect underwriting profitability in 2025. The combined ratio is projected to improve to 93.5 per Swiss Re Institute. Insurers should continue to invest heavily in technology to improve scale and efficiencies, while M&A is likely to be on the rise as more insurers seek growth through expansion.
Dividend Stocks for Your Portfolio
Stocks that pay regular dividends offer an attractive investment opportunity. Investors always look for greater yields and returns on investments. Regular dividend hikes reflect confidence in operational strength, which, in turn, fuels earnings power.
With the help of the Zacks Stock Screener, we have selected five property and casualty insurers with dividend yield and five-year historical dividend growth of more than 2% each. These stocks have a payout ratio of less than 60, reflecting enough room for future dividend increases.
Unum Group, with a market capitalization of $12.9 billion, is ranked as the leading disability income writer and the second-largest writer of voluntary business in the United States. It carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
UNM has increased dividends 15 times in the last 14 years. Its current dividend of $2.3 yields 1.5%, better than the industry average of 0.3%. The insurer’s payout ratio is 20, with a five-year dividend growth rate of 7.6%. It estimates a 10-15% increase in dividend going forward. (Check UNM’s dividend history here)
Unum Group Dividend Yield (TTM)
Unum Group Dividend Yield (TTM)
Unum Group dividend-yield-ttm | Unum Group Quote
Unum Group boasts a solid capital position. Sustained solid operating results have been fueling a solid level of statutory earnings and capital, cushioning financial flexibility. Strong statutory earnings might provide an impetus to strong dividend capacity. Premiums, the primary component of UNM’s top line, continue to gain from its healthy in-force block growth and higher sales. For the long term, it expects sales growth in the range of 8-12%, premium growth in the band of 4-7% and adjusted operating EPS growth of 10-15%. UNM is poised to grow on the operational excellence of Unum U.S. and Colonial Life.
Cincinnati Financial, with a market capitalization of $22 billion, markets property and casualty insurance. It carries a Zacks Rank #3 (Hold).
CINF has increased the annual cash dividend rate for 64 consecutive years, a record that is believed to be matched by only seven other U.S. publicly traded companies. Its current dividend of $3.24% yields 2.2%, better than the industry average of 0.3%. The insurer’s payout ratio is 48, with a five-year dividend growth rate of 8%. The dividend increases reflected strong operating performance and signaled management's and the board's positive outlook and confidence in outstanding capital, liquidity and financial flexibility (Check CINF’s dividend history here)
Cincinnati Financial continues to grow through a disciplined expansion of Cincinnati Re, which is making a nice contribution to its overall earnings, better pricing, strong renewal, solid retention and exposure growth. A higher volume of written policies with a focus on earning new business through agent-focused business model should drive long-term growth. It is building an agent network to sell its policies. This is because an agent-driven business is proving to be a more effective driver of growth and, therefore, holds promise for the long term.
American Financial Group, with a market capitalization of $11.3 billion, is a niche player in the P&C markets, with a focus on specialized commercial products for businesses. AFG carries a Zacks Rank #3.
AFG has increased dividends for 19 consecutive years with an annualized five-year growth rate of 11.6%. Its current dividend of $3.2 yields 2.3%, better than the industry average of 0.3%. The insurer also pays special dividends. The insurer’s payout ratio is 27. (Check AFG’s dividend history here)
American Financial Group, Inc. Dividend Yield (TTM)
American Financial Group, Inc. Dividend Yield (TTM)
American Financial Group, Inc. dividend-yield-ttm | American Financial Group, Inc. Quote
AFG’s robust operating profitability at the P&C segment, a stellar investment performance and effective capital management support effective shareholders return. It expects operations to continue to generate significant excess capital, which provides ample opportunity for additional share repurchases or special dividends over the next year.
Radian, with a market capitalization of $4.7 billion, is a niche player in the P&C markets, with a focus on specialized commercial products for businesses. RDN carries a Zacks Rank #2.
Riding on continued financial strength and flexibility, Radian declared a 9% increase in quarterly dividend in the first quarter of 2024. This is the fifth consecutive year where RDN has increased the quarterly dividend with a total increase of 96% over the past four years. Its current dividend yield of 2.7% betters the industry average of 2.5%. Its current dividend of 98 cents represents a payout ratio of 24. (Check RDN’s dividend history here)
Radian Group Inc. Dividend Yield (TTM)
Radian Group Inc. Dividend Yield (TTM)
Radian Group Inc. dividend-yield-ttm | Radian Group Inc. Quote
Radian remains focused on improving its mortgage insurance portfolio to drive long-term earnings growth. Its superior mortgage insurance portfolio is expected to create a strong foundation for future earnings. Business restructuring intensifies its focus on core business and services with higher growth potential, ensuring a predictable and recurring fee-based revenue stream. Radian Group maintains a solid balance sheet with sufficient liquidity and strong cash flows that help Radian Group to deploy capital via share repurchases and dividend hikes that enhance shareholders’ value.
Voya Financial, with a market capitalization of $6.3 billion, operates as a retirement, investment, and employee benefits company in the United States. VOYA carries a Zacks Rank #3.
VOYA has increased dividends at an annualized five-year growth rate of 27.5%. Its current dividend of $1.80 yields 2.3%, better than the industry average of 0.3%. The insurer’s payout ratio is 22. (Check VOYA’s dividend history here)
Voya Financial, Inc. Dividend Yield (TTM)
Voya Financial, Inc. Dividend Yield (TTM)
Voya Financial, Inc. dividend-yield-ttm | Voya Financial, Inc. Quote
Operational excellence has been helping the company deploy capital to enhance shareholders’ value. Voya’s earnings are driven by solid performance across Wealth Solutions, Investment Management and Health Solutions. These businesses are higher-growth, higher-return, capital-light businesses boasting a solid presence. Expansion of the distribution network and achievement of efficiencies through automation should help the company outperform.
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