This Stock Could Give Investors A Special Christmas Gift In December
It’s the most wonderful time of the year. Not only is the holiday season is a special time for everyone, but for investors, it also means that this is typically when we are treated to a little “gift” in the form of a dividend hike.
And if the company in question has been particularly good this year, we may even be treated to a special dividend.
But I’m getting a little ahead of myself.
As you may know, each month, over at High-Yield Investing, I make a point to screen for stocks that are likely put more cash in your pocket. Ideally, we are looking for hikes that could happen over the next four to six weeks. I also highlight noteworthy special distributions on the horizon. I give special attention to outsized double-digit increases and reliable dividend-payers that have been steadily growing payouts for a decade or more.
As usual, I give my premium readers a head start before sharing them with everybody else. And this month is particularly special, because I shared details on a company that routinely pays a special dividend around this time of year.
I’ll have more to share about special dividends in the coming weeks (more details on what they are, and why you should consider them). But for now, let’s dig in…
This Stock Pays A Christmas Bonus
The name Universal Insurance Holdings (NYSE: UVE) may sound fairly generic. And on the surface, this Florida-based property & casualty insurer seems no different than most of its peers. It offers a standard line of policies to protect homeowners’ and renters’ dwellings and personal property across 19 states, mostly in the Midwest and along the east coast.
Those products are marketed through an internal sales force, 10,000 independent agents, and online channels. The company has nearly 1 million policies in force (985,000) and rates an ‘A’ for financial stability from independent ratings agencies.
But when it comes to dividends, this isn’t your run-of-the-mill insurer.
Universal Insurance is one of just a small handful of businesses that pay a fifth dividend each year. Shareholders are treated to four regular dividends of $0.16 per quarter, or $0.64 annually. By itself, that provides a healthy yield of 6.0% — triple the market average.
But the company also supplements that base distribution with a special variable dividend payable at the end of the fiscal year. Actually, there isn’t much variation. Shareholders were treated to a special disbursement of $0.13 per share at the end of 2019. It also paid out $0.13 per share in 2020. And then $0.13 again in 2021.
Care to guess this year’s bonus? Yep, there is another $0.13 on the way on December 16 to shareholders of record on December 9. Remember, that’s on top of the regular distribution for a total payout of $0.29 per share.
That fifth extra payment bumps the annual payout to $0.77 per share in 2022 – which lifts the yield to 7.3%. This marks the 11th straight year in which UVE has dished out a special dividend.
Is UVE A Buy?
Of course, I never advise buying a stock simply to capture a single payment. But there is more here to like. For starters, written premiums have doubled from $883 million in 2015 to more than $1.7 billion last year.
Like all insurers, UVE also has a large float (the secret to Warren Buffett’s success). When a policy is sold, premiums start arriving on day one, but it might be years before a claim is made and a payment owed. During that lag time, the insurer is free to invest the cash – and keep all the gains.
In years when there is an underwriting profit, this float is essentially free money. UVE has a $1+ billion investment portfolio, most of which is sunk in safe, interest-bearing securities such as mortgage-backed bonds. That money has generated over $32 million in interest income over the last two years along with $70 million in realized gains.
And we are in a much higher rate environment now than last year, enhancing the float’s earnings power going forward. Along with dividends, the proceeds are being used for stock buybacks and debt reduction.
I would be remiss not to mention the impact of Hurricane Ian, which made landfall as a category 4 storm in September, devastating southern Florida. Claims from affected home and condo policyholders have wiped out an estimated $1 billion this year, leading to a year-to-date loss of $1.12 per share. But the company is partially protected by reinsurance and has seen its share of catastrophes over the years.
I see a bounce-back for this generous dividend payer.
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