Allstate (ALL) increases dividend by 12%, but trades well below its max yield.

Allstate’s (NYSE:ALL) dividend was increased by a solid 12%.  Its overall yield is now 1.85%. The firm started paying a dividend in 1993.

Allstate is the third-largest property-casualty insurer in the United States. It provides personal automobile insurance along with homeowners and life.  There are over 10,000 company agents in the United States. Their products are also sold my independent agents, banks, and brokerage firms.  It also has operations in Canada.  The large insurance firm also sells products over the internet and in contact centers.  Allstate was founded in 1931 and is headquartered in Northbrook, Illinois.

Allstate has maintained a solid three-year growth rate of dividends of 9 percent. Allstate currently ranks 11th in dividend yield within the large cap financial, property and casualty insurance category. The quarterly dividend for the April payment will be $0.37 versus the prior year rate of $0.33 per share. Allstate is not a member  of our Top 100 Dividend Stocks.  (see below).

The dividend will be paid at the new higher rate on April 3, 2017, to shareholders of record at close of business on February 28, 2017. Allstate Corp. is currently priced at $80.58. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
2/28/2017 0.37
11/28/2016 0.33
8/29/2016 0.33
6/1/2016 0.33
2/25/2016 0.33
11/25/2015 0.3
8/27/2015 0.3
5/27/2015 0.3
2/26/2015 0.3
11/25/2014 0.28
8/27/2014 0.28
5/28/2014 0.28
2/27/2014 0.28
11/26/2013 0.25
8/28/2013 0.25
5/29/2013 0.25
2/26/2013 0.25
11/28/2012 0.22
8/29/2012 0.22
5/30/2012 0.22
3/1/2012 0.22
11/28/2011 0.21
8/29/2011 0.21
5/26/2011 0.21
3/9/2011 0.21
11/26/2010 0.2
8/27/2010 0.2
5/26/2010 0.2
3/10/2010 0.2

Analysis of Allstate is based upon our five key criteria for the Top 100 list, which include;

Category Value Score
Dividend Yield 1.85% 310
Dividend Growth (3-7 year avg) 10.2% 206
Forward P/E 11.70 47
S&P Financial Rating A- 120
Beta 0.85 100
Total Score 783

% Yield 3 Year Div. Growth Rate 7 Year Div. Growth Rate BV 2016 P/BV Ratio 10 yr P/BV Low 10 yr P/BV High 5 yr low Yield % 5 yr max Yield %
1.85% 9% 11.4% 62.05 1.29 0.75 1.50 1.56% 2.74%

Final Analysis;

Positives;

  • Allstate maintains an investment grade rating of A-.
  • Allstate has maintained a three-year growth rate of dividends of 9 percent.
  • Allstate maintains a beta of 0.85, below the average company.
  • Allstate has paid out a dividend consecutively for the past 24 years.

Negatives;

  • Allstate’s dividend yield is below that of the S&P 500 Index.
  • Allstate’s current dividend yield (1.85%) is below its five-year average historical dividend yield.
  • Allstate is trading above its ten-year average price/book (P/BV) ratio.

Latest Earnings & Overall Analysis:

Allstate issued its earnings data on February 15th. The company reported $2.17 earnings per share (EPS) for the fourth quarter, topping the consensus estimate of $1.61.  The firm also produced revenue of $9.3 billion in Q4. This was also above analyst expectations of $8.5 billion and a 7% increase from calendar year 2015.  Premium increases provided most of the upside for the quarter.  For the full-year, Allstate’s total revenue was $36.5 billion, up 2.5% year over year.  Earnings per share was $4.87 in 2016. The bottom line was negatively effected by $853 million catastrophe losses last year.

 

For Q4, property-liability insurance premiums accounted for nearly $8 billion in revenue for the latter three months of 2016.  This was nearly 3% higher than last year’s Q4.  The firm’s combined ratio was 87.7, a rise of nearly 30 basis points from 2015.  Overall policies in force dropped by just over 13% for Q4 2016 versus Q4 2015.  Esurance, their online brand, had stronger growth at 5.6% from Q4 2015. But policies written by Esurance were nearly flat and offset only by increases in premium, which accounted for the majority of the growth.

On the homeowners side,  written premiums rose modestly in Q4 by near 2%.  This was offset by lower policies in force, as Allstate moves away from writing homeowners coverage.  Overall operating expenses for Q4 rose by just over 13% versus the prior year to just over $1 billion. For the full year 2016, total operating expenses rose slightly by 0.5% to $4 billion.  Allstate has a strong capital structure. It has a strong A- credit rating from Standard & Poors. The insurance giant returned $369 million to shareholders in Q4, including buybacks of nearly $250 million and dividends of  $122 million.

 

The company also acquired SquareTrade during Q4 and closed the deal this January. SquareTrade is a provider of consumer electronics and appliance protection plans. It acquired the firm for $1.4 billion.  SquareTrade’s focus on on providing insurance protection plans for computers, mobile devices, appliances, and other consumer electronic products. The firm has nearly 25 million plans in force.   SquareTrade has witnessed outstanding growth with revenue quadrupling over the past five plus years.

Allstate has slowly moved away from its older broker model in the last few years. Its acquisition of Esurance for $1 billion in 2011 moved the firm more towards a direct to consumer model. Although its agent network still provides the firm with a constant stream of revenue and stable base of customers, growth is harder to come by. Esurance has been a success, but come at a higher cost as its combined ratios have historically been above 100%. Its SquareTrade purchase will assist in future growth, but only offers modest upside given the size of Allstate.

5 Year Price Chart: Source Yahoo

all

Firms within the property-casualty insurance industry are in a difficult position. Price competition is fierce within the industry and the new online providers make it more difficult to “hide” pricing from new customers.  Policies written today at low rates can easily come back to haunt a property-casualty company. Although Allstate does utilize conservative underwriting, it to can be subject to large claims during periods of high risk (i.e hurricanes).

Allstate can be a solid investment choice for any conservative investors, but only at the right price. It currently trades at nearly 1.3 times book value, towards the high end of its historical range. Its growth prospects despite the acquisitions is very low. Its primary methodology for growth in the past few years has not been new policy owners, but premium increases. This can only continue for so long.  Its overall yield is below 2% and well below the 2.75% yield offered to investors in 2012, when Allstate traded at a much lower price. Its dividend growth rate is solid and beta low, but at current levels the stock is overvalued.

 

 

Based on the firm’s low historical dividend yield and high Price/Book (P/B) ratio, Allstate does not qualify as one of our Top 100 Dividend Stocks

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Allstate Corp. Dividend Yield Historical Chart (Click to enlarge)

all3

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

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