After compiling my most recent watchlist I decided to pull the trigger on the first insurer in my portfolio. With my earlier purchase of Analog Devices Inc. this will be my second and final buy for the month.
On May 30 I bought 15 shares of The Travelers Companies (TRV) for a total of $1,850.
In this post I explain the reasons why I made this addition to my portfolio and what this means for my forward dividend income.
The Travelers Companies, Inc., through its subsidiaries, provides a range of commercial and personal property, and casualty insurance products and services to businesses, government units, associations, and individuals in the United states and internationally. The company operates through three segments: Business and International Insurance, Bond & Specialty Insurance, and Personal Insurance.
The main predecessor companies of the company are The St. Paul Companies, Inc. and Travelers Property Casualty Corporation - both of these were founded back in the 19th century.
If the red umbrella logo of The Travelers Companies reminds you of the Citigroup logo you are on to something: the two companies merged in 1998. This merger didn’t work out too well, the companies separated again and The Travelers Companies grabbed their red umbrella back.
However, I didn’t buy Travelers for its interesting corporate history but rather for its attractive dividend features.
TRV is a dividend contender with an impressive 13 year streak of dividend increases. The current yield is 2.33% – lower than the average 3.5% yield I strive for in building my portfolio.
The payout ratio is at 28%, leaving ample room for continued dividend growth. The 5 year dividend growth is a decent 11.92%.
Comparing Travelers’ Earnings per Share (EPS) in the last quarter versus the same quarter in the prior year shows a -5.65% decrease. Current year EPS versus last year equals a -8.67% decrease.
While EPS decreases should give every investor some pause, the company explains itself by pointing to significant catastrophe losses (hurricanes etc).
Hard to predict when those occur again and in which frequency (the very reason the insurance industry exists) - but I think the strong dividend features make up for a bad quarter.
The Price/Earnings (P/E) ratio is 12.2, slightly above the 5 year average of 10.5, but well below the Insurance industry’s 5 year average of 20.8.
In their May 13 report CFRA marks The Travelers Companies Inc. as a 4 star buy with a 12 month target price of $132 - about 8% above my buying price.
Given the yearly dividend of $2.88 per share this purchase increased my forward annual dividend income by $43.20.
What do you think about Travelers? Are you buying other dividend growth stocks? Leave a comment/reply to share your thoughts!
2 thoughts on “New Buy: The Travelers Companies Inc. (TRV)”
Seems like a solid buy with lots of room for future dividend growth. Thanks for the accompanying analysis, very interesting reading material. Also pretty large buy (for my standards anyway) so its nice to see the direct actual yearly impact on the income.
Glad you liked it. One of my goals for the year (http://www.tallinvesting.com/category/goals/) is to limit my transaction cost - hence larger purchases.