American Financial (AFG) to Enhance Shareholders' Value

American Financial Group (NYSE:AFG) AFG plans a special dividend of $12.00 to $14.00 per share, following the closing of the sale of its Annuity business to Massachusetts Mutual Life Insurance Company. If the special dividend is approved by the board of directors, it would be the 13th special dividend paid by this Zacks Rank #2 (Buy) property and casualty insurer in the last 10 years.

In January 2021, American Financial agreed to divest its Annuity business to Massachusetts Mutual. This will mark the company’s exit from the fixed and indexed annuity market. American Financial estimates to recognize an after-tax gain on the sale of $680 million to $700 million ($7.85 to $8.10 per share), when the sale closes in the second quarter of 2021. It expects to receive cash sale proceeds of $3.4 billion. Management noted this divestiture will considerably boost the insurer’s capital and liquidity.

American Financial has traditionally maintained moderate adjusted financial leverage around 20%, with good cash flow and interest coverage ratio. As of Mar 31, 2021 excess capital is approximately $1.2 billion, which includes parent company cash of approximately $200 million. It intends to hold back about $200–$300 million of the excess capital to maintain flexibility for any opportunity that may arise in the future.

Solid operating profitability at the P&C segment, a stellar investment performance and effective capital management boost shareholder return. In each of the last 14 years, the company has successfully increased its dividends apart from paying out special dividends and buying back shares. Its dividend yield of 1.5% betters the industry average of 0.4%.

Shares of American Financial have gained 48.4% year to date, outperforming the industry’s rise of 19.6%. The company’s superior underwriting discipline and sound capital structure should help it retain the momentum.

Among other insurers, RLI (NYSE:RLI) Corp. RLI and Radian Group (NYSE:RDN) RDN hiked its quarterly dividend by 4.1% and 12%, respectively. Last month, the board of directors of The Travelers Companies (NYSE:TRV) TRV approved a 4% hike in its quarterly dividend.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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