3 Top Dividend Stocks in Insurance
Insurance stocks can be an excellent investment for both growth and income. While there are many dividend-paying stocks in the insurance industry, here are three -- a health insurer, a life insurer, and a specialty insurer -- that could be excellent long-term investments in your portfolio.
Don't be deterred by the low dividend yield
Aetna (NYSE: AET) is a leader in the health insurance business, offering HMO, POS, and PPO products, as well as Medicare Advantage, Part D prescription drug coverage, and Medicare Supplemental plans. The company has done a fantastic job of growing, with revenue up by 84% since 2010.
As far as Aetna's dividend goes, you'll notice that it's the smallest yield on the list, by a wide margin. For starters, the current dividend represents a payout ratio of just 21% of 2017's expected earnings, which leaves plenty of room for growth. In addition, Aetna has a $4 billion buyback authorization in effect, which represents nearly 8% of the company's outstanding shares. And finally, in addition to providing a steady stream of income, Aetna has been a phenomenal total return investment. Since 2000, Aetna has returned a staggering 2,370%, which translates to a 20% annualized return over the past 17.5 years.
The leaner MetLife could be a smart addition to your dividend portfolio
MetLife (NYSE: MET) recently completed its spinoff of Brighthouse Financial, which should allow the company to focus on its core businesses of group life insurance, employee benefits, international operations, and asset management. Between these categories, MetLife serves about 100 million customers and has operations in almost 50 countries around the world.
MetLife is the largest U.S. life insurer, and it has one of the strongest brand names in the entire insurance industry. Furthermore, the company is uniquely positioned to benefit from job and wage growth in the United States, as this could generate rising group life insurance sales.
One potential caveat -- although MetLife pays the most generous dividend yield of the three stocks discussed here, there could be a dividend reduction in store for MetLife, but not for a bad reason. 21% of last year's profits came from Brighthouse, and this may need to be compensated for now that the spinoff is complete. I'm not necessarily saying it will happen, but I wouldn't be surprised.
A niche insurer with lots of opportunity ahead
With a dividend yield of 2.1%, Aflac (NYSE: AFL) isn't exactly a "high dividend" stock, but there are other reasons to love this specialized insurance company. For starters, Aflac is a Dividend Aristocrat, having raised its payout annually for more than 30 years, and with a payout ratio of just 26% of TTM earnings, there's no reason to believe the streak will end anytime soon.
Aflac is a unique insurer, providing coverage for situations that most traditional insurance plans don't cover. Major products include accident insurance, short-term disability insurance, and critical illness insurance. In addition, it often surprises people not too familiar with the company to learn that the majority of Aflac's revenue comes from Japan.
In a nutshell, an aging population in both of its major markets and the ongoing potential for healthcare reform in the U.S. should give Aflac opportunities to provide innovative insurance solutions going forward.
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Matthew Frankel owns shares of Aetna. The Motley Fool recommends Aflac. The Motley Fool has a disclosure policy.