Dividend Kings Overview and Valuation Series – Cincinnati Financial Corporation (CINF)

Welcome to this series where I will be reviewing all the Dividend Kings and providing an overview and valuation calculation on the companies. Dividend Kings are a rare breed of Dividend Growth Companies. These companies have managed to raise their dividend for 50 or more years consecutively. Through all types of market swings, economic trouble, wars, recessions, these companies have seen it all and continue to reward shareholders with rising dividend income.

This week’s entry will focus on:

Cincinnati Financial Corporation

—

Overview

Cincinnati Financial Corporation is a property and casualty insurance company that operates in five segments:

• Commercial Lines Insurance – property, auto, worker’s comp, director and officer liability
• Personal Lines Insurance – auto, homeowners, fire, marine and umbrella liability
• Excess and Surplus Lines Insurance – third party liability insurance and commercial property 
• Life Insurance – term life, universal life, whole life
• Investments – fixed maturity investments, preferred stocks

Cincinnati Financial Corporation was founded in 1950 and is headquartered in Fairfield, Ohio.

(Source: Company Website)

—

Metrics:

Dividend Amount: $2.76

Dividend Yield: 2.25%

5 Year Dividend CAGR: 5.87%

Dividend Payout Ratio: 21.90%

Years of Dividend Increases: 61 Years

EPS: $12.60

P/E: 21.55

Book Value Per Share: $75.39

P/B: 1.63

Analyst 5 Year Earnings Growth Estimate: 14.39%

—

Valuation:

Current Price: $122.66 (4/29/22)

DCF (10% RRR): $388.13

P/E Mean Reversion:$319.16

P/B Mean Reversion: $108.56

Dividend Yield Theory: $109.09

Average of the four: $231.24

Average of the P/E, P/B: $108.83 – using this figure is more realistic

Analyst 1 year Price Target: $139.80

—

Commentary:

CINF is a well-established insurance provider with 1,921 agency relationships with 2,721 locations across 46 states.  The company’s business model is focused on independent insurance agents selling their products.  This diversified approach allows consistent revenue and growth, with new agents being added each year.  According to the company’s recent presentation, 214 new agents were added in 2021.  

CINF is growing very steadily, which is exactly what you are looking for in an insurance company.  The company stated that investment income rose 8% and net premiums grew 10% in Q4 2021.

The stock has provided solid long term returns of 70.15% in price appreciation in the past 5 years compared to the S&P 500 return of 87.07%. The longer term chart is more impressive.  The current dividend yield is lower than the historical average so it appears the stock may be overpriced on this metric.  Similarly the Price-to-Book valuation shows it is currently overvalued as well.  The dividend growth is on the lower end, just under 6% and with the current yield in the 2% range, the combination of dividend and growth does not hit my investment criteria. The dividend history of 61 years of consecutive growth shows a stable business model.

The stock appears fully valued to overvalued at this time and waiting for a pullback may be needed before purchase.

Disclosure:  I do not own shares of CINF.