In order to increase shareholders’ worth, the board of directors of ProAssurance Corporation PRA has declared a special dividend of $4.69 per share. Additionally, a regular quarterly dividend of 31 cents was declared. Both dividends will be paid on Jan 9, 2017 to shareholders on record as of Dec 23, 2016.
Even earlier, the company did not refrain from paying special dividends. In fact, the insurer’s special dividend history is impressive with the same being declared thrice in the last four years. A special dividend of $2.50, $2.65 and $1.00 per share was declared in 2012, 2014 and 2015, respectively.
Despite the positive news, shares fell 1.15% in the trading session because of a decline in the broader market. The company has, however, slightly underperformed the Zacks Categorized Insurance – Property and Casualty, Title Insurance industry as evident by the overall gain of 15.5% by the stock year to date, compared with a gain of 16.9% for the former. The underperformance can be blamed on the company’s increasing expenses, declining investment income and volatility in premium retention. Nevertheless, its increasing revenues and inorganic growth along with a strong capital position that enables it to efficiently manage its capital has helped the stock.
The company has also been paying dividends on a regular basis. The overall capital deployment initiatives undertaken by ProAssurance have been compelling. Over the past three years, the company returned to its shareholders an amount equal to or exceeding its earnings. In the first nine months of 2016, the company returned $35 million of capital comprising $2.1 million in share buyback and $32.9 million in dividend payments. This takes the tally to $1.7 billion of share buybacks and dividend declared over the past 10 years. Apart from using the capital for share buyback and dividend, the company spent $750 million on strategic acquisitions over this period which has positioned it well for inorganic growth.
Efficient capital deployment reflects the financial strength and strong operating results of the company. ProAssurance’s ample liquidity for payment makes us optimistic. We expect strong free cash flow generation to engage the company in more buybacks and dividend payouts so as to enhance its shareholder value.
A flurry of special dividend recently from insurers point to the fact that they are refraining from deploying capital in potentially unprofitable business that might lead to adverse profitability and capital drain. In an environment marked by weak pricing, intense competition and dearth of growth opportunities, a rather better option to utilize capital and increase shareholders’ wealth is to reward investors with dividend hike, a special dividend or an enhanced share buyback.
ProAssurance currently carries a Zacks Rank #5 (Strong Sell).
Investors interested in the space can consider Alleghany Corp. Y which delivered positive surprises in three of the last four quarters, with an average beat of 20.52%. Currently, Alleghany sports a Zacks Rank # 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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