Prudential Financial (PRU) lifts dividend by 7%, but 70% stock price rise reduces attraction.

Prudential’s (NYSE:PRU) dividend was increased by a solid 7%. Its overall yield is 2.77%. The firm started paying a dividend in 1996.

Prudential Financial is one of the biggest diversified insurance companies in the world. The financial giant offers life insurance, retirement plans, investment management, and annuities for million of customer worldwide. The majority of its sales come from the United States and also Japan. It’s the second largest life insurance firm in the country. The firm is headquartered in Newark, New Jersey and was founded in 1875.

Prudential has maintained a solid three-year growth rate of dividends of 11.4 percent. Prudential currently ranks 7th in yield within the financial, life insurance category. The quarterly dividend for the March payment will be $0.75 versus the prior year rate of $0.70 per share.

The dividend will be paid at the new higher rate on March 16, 2017, to shareholders of record at close of business on February 22, 2017. Prudential Financial is currently priced at $108.75. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
2/22/2017 0.75
11/18/2016 0.7
8/19/2016 0.7
5/20/2016 0.7
2/19/2016 0.7
11/20/2015 0.7
8/21/2015 0.58
5/21/2015 0.58
2/20/2015 0.58
11/21/2014 0.58
8/22/2014 0.53
5/22/2014 0.53
2/21/2014 0.53
11/22/2013 0.53
8/23/2013 0.4
5/24/2013 0.4
2/22/2013 0.4
11/16/2012 1.6
11/18/2011 1.45
11/19/2010 1.15


We examine Prudential upon our five key criteria, which include; 

Quantitative Analysis:

Category Value Score
Dividend Yield 2.77% 174
Dividend Growth (3 to 7 year avg) 13% 158
Forward P/E 9.89  24
S&P Financial Rating A 120
Beta 1.35 225
Total Score   701

Additional quantitative information on P/BV ratio and historical yield;

% Yield 3 Year Div. Growth Rate 7 Year Div. Growth Rate BV 2017 P/BV Ratio 10 yr P/BV Low 10 yr P/BV High 5 yr lowest Yield % 5 yr max Yield %
2.77% 11.4% 14.9% 101.2 1.07 0.60 1.71 1.87% 3.96%

Positives;

  • Prudential maintains an investment grade credit rating.
  • Prudential has maintained a three year growth rate of dividends of  11.4 percent.
  • Prudential dividend yield is above that of the S&P 500 Index.
  • Prudential is trading below its ten-year average price/book value (P/BV) ratio.

Negatives;

  • Prudential’s current dividend yield (2.77%) is below it’s five-year average of 2.92%.
  • Prudential maintains a beta of 1.35, higher than the average company.

Latest Earnings Analysis:

Prudential issued its last earnings data on February 8th. The company reported $2.46 EPS for Q4 quarter, topping the consensus estimate of $2.31 by $0.15. Total revenue rose slightly, by just 1.3% year over year to $13.4 billion.  This was above analyst expectations.  The solid results were driven by its U.S. Retirement Solutions and Investment Management Group. Revenue was nearly 25 higher than the year ago period. The annuity segment also excelled, rising by 3% from Q4 2015.  Overall life insurance revenue also was up to $139 million versus $99 million a year ago.  For the entire calendar year 2016, Prudential maintained $4.3 billion of net income, which results in $9.71 per share.  Prudential maintains a solid return on equity of 9.7%.

Japan accounts for nearly 90% of international revenue. Prudential’s expertise in Japan has helped the firm create a dominate position in that market. Its agent market in Japan is top-notch. But low interest rates there, and here in the U.S., have created a difficult financial problem. Prudential needs to earn enough income from its investments to cover future liabilities. If interest rates stay lower for longer, it will effect the firm’s ability to increase profitability.

In addition, regulatory issues could be a concern in 2017. The firm has been designated as a nonbank.  If it is considered a “bank” in the future, the firm would be subject to higher capital structures. Although we think with the new administration will be positive towards financial firms, it remains a risk. We like the firm’s diversification and strong positions here in the U.S. and Japan. The issue at this point is valuation. Twelve months ago the stock traded at $64 a share, versus today’s elevated price of $111.

Its high yield point is nearly 4%, which it hit in late 2013 and early 2016.  At present, its yield is below 3% due to the rapid price rise.  The firm does have merits including a strong dividend growth record, low P/E ratio, and a solid investment grade rating. However, the stock has dropped out of our Top 100 stock list for more favorable dividend candidates.

Based on the firm’s lower than average dividend, rapid price rise, and higher beta, Prudential does not qualify as a member of our  Top 100 Dividend Stocks
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Prudential Financial, Inc. Dividend Yield Chart (Click to enlarge)

pru3

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

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