ALIZY-2022-08-insurance for dividend growth investors

Future profits: ALIZY for the dividend growth investor

Why invest in ALIZY for a dividend growth investor?

It is simple – Allianz may be the best insurance company that you have never heard of. It is gigantic (74B USD) and is an investment grade (S&P rating of AA). The company operates globally with various segments, including property-casualty insurance, life and health, and asset management. It is a solid holding that the dividend growth investor should consider – particularly if they are looking for global exposure.

This is a German multi-national financial and insurance firm (HQ in Munich) with two ADRs in the US markets. My preference is ALIZY as a solid ADR at 0.1 with good volume.

Making the case – size and stability

This is a big firm with a rich history – it has 155,000 employees and 100m private and corporate clients around the world. ALIZY was founded in 1890 and has a long history of operations. It is a large and diversified set of insurance and asset management businesses in multiple geographic regions. The diversification offers means it is less likely to be affected by smaller, regional shocks. If a dividend growth investor must pick a few insurance firms, this would be one that provides exceptional European Union exposure and global exposure.

History and dividends

The ALIZY history on the ADR is short. It pays a single, annual, divided. This may be unwelcome for US-based investors or global investors looking for regular and consistent distributions of earnings. If you are prepared to wait, however, this can be a profitable company. The present yield is 6.2% (Seeking Alpha) and this is a nice starting yield. The company raises the dividend in the native currency but the currency fluctuations mean the dividend increases in USD for the ADR will not be smooth or regular. For instance, the USD dividend payment in 2022 was lower than the payment in 2021. This will be of some concern to some.

Future outlook for a dividend growth investor

So – what does the future look like? We know that this has been a strong and steady performer but what do analysts expect? From Figure 1, we can see that the analyst estimates are rosy when they are further in the future and they become more muted and lower closer to the time.

As a consequence, we need to take the future estimates with a grain of salt and determine what an appropriate PE ratio may be in 2024. Given the present PE of about 10, this ADR should reach about 12, I expect, based on the quality of the company and the usual PE ratio for insurance companies that I expect to see.

If we expect a PE of 12, at the end of 2024, we might expect a total annualized rate of return of 30% (as shown in Figure 1). It may be slightly lower, and if we assume a PE of 10.5x in 2024, then the Tot Ann RoR would still be 23%. Either of these outcomes is good, assuming that the analyst expectations of improved earnings eventuate.

Five-year estimates range from annual growth in earnings come in at about 16% (Source: Factset analysts, through FastGraphs). This suggests that much of the long-term growth would be in the 2023 year with some relatively robust growth after that.

ALIZY-2022-08-analyst estimates-dividend growth investors.jpg
Figure 1. ALIZY-2022-08-analyst estimates-dividend growth investors. Historical Graph and Analyst Estimates – Copyright © 2011-022, F.A.S.T. Graphs™ – All Rights Reserved.

Verdict

When we put this together – what do we get? In my opinion – this looks like a solid value investment. We are buying at a low cost which is what a dividend growth investor should try. We have a margin of safety so that prices are less likely to decline further. We have a solid dividend yield. We have analyst estimates for robust future growth.

ALIZY looks like a buy at the current prices and I will keep buying more of this for our portfolio.

Why invest in ALIZY for a dividend growth investor? It is simple – Allianz may be the best insurance company that you have never heard of. It is gigantic (74B USD) and is an investment grade (S&P rating of AA). The company operates globally with various segments, including property-casualty insurance, life and health, and asset…

Why invest in ALIZY for a dividend growth investor? It is simple – Allianz may be the best insurance company that you have never heard of. It is gigantic (74B USD) and is an investment grade (S&P rating of AA). The company operates globally with various segments, including property-casualty insurance, life and health, and asset…

Leave a Reply

Your email address will not be published.