Progressive Corporation (PGR) is up over 2% today to $32.30 after it released its Q3 earnings results on Thursday morning. Progressive is one of our Top 100 Dividend Stocks. The company reported earnings of $0.34 per share for the quarter. This slightly missed analysts estimates. However, on the revenue side of the equation, the company generated $6.05 billion during the quarter, in contrast to analysts who expected $6.04 billion. Progressive also maintained a high return on equity of over 13%. These results from Progressive caught analysts off guard. There are currently eleven “hold” ratings and six “sell” ratings while no analyst recommends buying the stock. We consider this a positive when analysts are generally negative on a particular stock, as any good news will result in the stock price advancing. The latest downgrade was by Zacks Investment Research on September 20th. Zacks put a sell rating on the stock with a price target of $32.69. Citigroup and Deutsche Bank have also cut their ratings on the stock in 2016. You can witness the negative sentiment around Progressive based upon its EPS trend data. There has been a substantial degradation of earnings projections for Progressive by analysts in the past 90 days;
| EPS Trend | Current Qtr. | Next Qtr. | Current Year | Next Year |
| Current Estimate | 0.34 | 0.5 | 1.6 | 2.02 |
| 7 Days Ago | 0.36 | 0.5 | 1.6 | 2.03 |
| 30 Days Ago | 0.41 | 0.52 | 1.66 | 2.07 |
| 60 Days Ago | 0.44 | 0.52 | 1.69 | 2.1 |
| 90 Days Ago | 0.47 | 0.53 | 1.78 | 2.12 |
Source: Yahoo Finance; http://finance.yahoo.com/quote/pgr/analysts?ltr=1
Progressive is one of the stronger players within the insurance industry. Its bread and butter is auto insurance. It ranks 4th among all major insurers at 8.8% (see table below). Although Progressive has entered its maturity phase with revenue and earnings growth being much more modest than in the past, its revenue stability and dividend increases have continued. Its underwriting margins have dropped from 6%, but remain constant at 4%. It has a solid direct sales channel and an excellent reputation. The company maintains a solid balance sheet with an excellent credit rating. Moody’s Investors Service assigned an A2 investment grade rating to $500 million of senior unsecured notes due 15 January 2027 that were issued in August 2016. Progressive’s maturity as a firm also provides advantages for investors focused on compelling dividend paying companies with low risk. It currently pays a solid 2.85% dividend yield.
Top Ten Auto Insurance Companies;
| 1 | State Farm Mutual Automobile Insurance | $36,545,896 | 18.30% |
| 2 | Berkshire Hathaway Inc. | 22,808,382 | 11.4 |
| 3 | Allstate Corp. | 20,036,973 | 10 |
| 4 | Progressive Corp. | 17,518,721 | 8.8 |
| 5 | USAA Insurance Group | 10,562,100 | 5.3 |
| 6 | Farmers Insurance Group of Companies (3) | 9,985,969 | 5 |
| 7 | Liberty Mutual | 9,942,667 | 5 |
| 8 | Nationwide Mutual Group | 7,468,708 | 3.7 |
| 9 | American Family Mutual | 3,694,271 | 1.9 |
| 10 | Travelers Companies Inc. | 3,377,404 | 1.7 |
Source: Insurance Information Institute;http://www.iii.org/fact-statistic/insurance-company-rankings
We think with the company’s latest earnings release this morning and strong stock reaction, Progressive may begin the process of reversing analysts opinions. The stock has a market capitalization of $18 billion, a forward P/E ratio of 15.5 and a low beta of 0.81. Progressive Corporation announced a regular quarterly dividend of $0.8882, a 29 percent increase from the prior rate of $0.6862 per share earlier this year. Progressive has a unique annual dividend policy program determined by a calculation formula;
| Dividend Amount Per Share | = | Annual After-Tax Underwriting Income |
X | 33 1/3% Target |
X | Gainshare Factor |
| Common Shares Outstanding on 12/31/15 | ||||||
This has resulted in the following historical dividends;
| Date | Quarterly Dividend |
| 2/3/2016 | 0.8882 |
| 2/2/2015 | 0.686 |
| 1/27/2014 | 0.493 |
| 1/23/2013 | 0.284 |
| 1/24/2012 | 0.407 |
| 1/25/2011 | 0.399 |
| 12/16/2010 | 1.00 (special) |
| 1/25/2010 | 0.161 |
The company has paid out $4.38 in total dividends in the last eight years. Although variable based upon the formula, Progressive has doubled its dividend from 2012. On a valuation basis, outside of its modest forward P/E ratio, Progressive is trading below its average price/book (P/BV) range. Progressive is also trading well above its average historical dividend yield of 1.64%. In our last analysis of Progressive in January, – https://thedividendmanager.com/2016/01/29/analysis-progressive-corp-increases-dividend-by-29/, we favored the firm based upon the high dividend yield, low historical price/book value, strong credit rating, and strong dividend growth. We are maintaining Progressive as one of our Top 100 Dividend Stocks.
| BV 2016 | P/BV Ratio | 10 yr P/BV Low | 10 yr P/BV High | Current Yield % | 5 yr lowest Yield % | 5 yr highest yield % |
| 14.35 | 2.1 | 1.85 | 3.85 | 2.85% | 1.37% | 3.03% |
Explanation: Dividend growth financial stocks may be valued upon historical relative price/book value and current yield analysis. Dividend financial stocks trading at a low historical price/book value (P/BV) ratio should be viewed more highly to investors due to their depressed valuation versus other higher P/BV ratio stocks. Max P/BV price target is based upon company reaching its highest historical P/BV ratio. Dividend stocks should also be viewed favorably when the current yield is above historical readings for the past 10 years. Further information on evaluating dividend growth candidates can be found at http://seekingalpha.com/author/timothy-mcintosh/articles
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