The Most Generous Special Dividend Track Record I’ve Ever Seen…

A couple of months ago, I began a series of articles about special dividends.

Few investors even know about these stocks. But it’s part of my job to help income investors look under the radar for high-income opportunities.

That’s why I regularly screen for stocks that are likely to either raise dividends or pay an extra-large special dividend. I flag these stocks first for my premium readers so that they can research them and get a head start. Then, I share them with the public.

First, I talked about special dividends — what they are, and why income investors should consider adding them to their portfolio. Then, I shared the names of some of my favorites over the next several weeks.

Today, I’d like to tell you about another special dividend payer. It just might be the most generous special dividend payer I have ever come across.

Let’s learn more…

One More Special Dividend Payer To Watch…

There is secure, and then there is American Financial Group (NYSE: AFG). The insurer has been rated ‘A’ (or excellent) by A.M. Best for more than 110 years – one of only four organizations to make that claim.

The Cincinnati-based company is a leading provider of property & casualty insurance for commercial clients. It issues specialty policies covering everything from aviation to crop protection. It has written nearly $9 billion in premiums over the past year.

Thanks to robust underwriting results and better returns on its investments, AFG just upped its forecast (a regular pattern) and is now expecting to close out the fiscal year with net earnings of at least $11 per share. The insurer routinely generates more cash than needed to conduct operations. And it dutifully returns a hefty chunk of the surplus to shareholders.

The board has increased dividends for 17 straight years, most recently authorizing a 13% hike in the quarterly payout to $0.63 per share. That puts the quoted yield at a rather ordinary 1.8%. But don’t be fooled because most capital returns are made outside the normal channels.

AFG has the most generous special dividend track record I’ve ever seen.

An Incredible Track Record Of Special Dividends

In June 2021, the board authorized a massive bonus dividend of $14 per share, equivalent to 25 regular quarterly dividends all at once. Two months later, it followed up with a special dividend of $2.00 per share in August. At that point, the company had returned $3.8 billion cumulatively to investors over the prior five years.

But it wasn’t done there.

Management dished out a $4 per share special dividend in October and a $4 per share repeat in November. For those of you counting, that’s four special dividends in less than six months. Par for the course, here. In fact, AFG shareholders were showered with a whopping $36 per share in special dividend payments since May 2021 and $54 since 2012. Yes, you read that correctly.

Source: AFG Investor Presentation

By definition, special dividends are normally one-off events, often from an asset sale or some other transaction. But AFG has made them a habit over the past decade. That streak continued this past year, despite catastrophic hurricane claims.

AFG dished out a special distribution of $2 per share in March, $8 per share in May, and another $2 outlay in November. For the record, that totals $14.31 in regular and special dividends over the trailing twelve months – a yield of 10.4% on the current share price.

Closing Thoughts

There’s plenty more where that came from. To quote CEO Craig Lindner, “Our excess capital remains at a significant level, which affords us the flexibility to make opportunistic repurchases and pay additional dividends.”

Like most insurers, there is a lag between the day upfront premiums are collected and the time a claim is paid out. In between, the company is free to invest that float money (the secret to Warren Buffett’s riches), pocketing any income and gains.

Most of that cash goes into floating-rate securities that deliver a respectable income stream. Of course, seven rate hikes have enhanced the earnings power of this multi-billion dollar portfolio. The combination of higher balances and stronger rates has boosted quarterly net investment income (excluding alternative investments) by 35% over the past year.

I flagged AFG this time last year, and it has since delivered 20% in dividends and capital appreciation in an otherwise terrible market. With a more favorable rate environment, I anticipate another market-beating performance in 2023.

In the meantime, if you want to know about my absolute favorite high-yield picks, you need to check out my latest report…

In it, you’ll find 5 “Bulletproof Buys” that have weathered every dip and crash over the last 20 years and STILL handed out massive gains. And each one of them carry high yields, with dividends that rise each and every year. Go here to check it out now.