Passive income is a great way to make money work for you. One of the best ways to generate passive income is by investing in good companies that consistently pay dividends. Dividend payers tend to be higher quality companies with strong capital management, which is why these stocks can deliver solid results regardless of the economy.
Insurance companies can be great investments because people are always looking to protect themselves and regulations require businesses and individuals to have insurance coverage. As a result, insurers can be an excellent source of passive income. Here are three safe insurers for your consideration.
Chab (CB 0.57%) writes a variety of insurance policies, including auto, homeowners and commercial insurance, such as workers’ compensation. The insurer is one of the world’s largest property and casualty insurers, which is a testament to its strong underwriting capability.
The combined ratio is a way to measure the profitability of an insurer. This metric is calculated by adding total claims paid to expenses divided by total premiums collected. A ratio below 100% is desirable; the lower the better. From 2002 to 2021, Chubb’s combined ratio has averaged 91.7% – well below the industry average of 100%.
This translates into good policies that provide strong cash flows, which are returned to investors through dividends. Chubb has increased its dividend payout for 29 consecutive years and is a member of the Dividend Aristocrats club — companies in S&P 500 that have increased dividends for 25 years or more.
The payout ratio is a useful metric for dividend stocks and shows the percentage of a company’s earnings that it spends paying dividends to shareholders. Chubb’s payout ratio has averaged 30% over the past 10 years and is currently 17%, a good sign that the company can maintain that dividend.
2. Cincinnati Financial
Cincinnati Financial (CINF 0.95%) writes similar policies to Chubb, and has also done a solid job managing underwriting risk.
What makes Cincinnati Financial impressive is its long history of dividend growth. For 62 years, the insurer has increased its dividend, placing it in the most exclusive club of Dividend King, or companies in the S&P 500 that have increased dividends for 50 years or more.
However, it wasn’t always smooth sailing. From 2008 to 2011, Cincinnati Financial’s combined ratio averaged 104% in a challenging environment for insurers. The company maintained dividend growth during this difficult period, a testament to its capital management and commitment to shareholders. Since current CEO Steve Johnston took over in 2011, Cincinnati Financial’s combined ratio has averaged 94.6%, beating the industry average of 99%.
Cincinnati Financial’s payout ratio is a modest 19%, and its solid underwriting and strong capital management make this company another safe dividend stock to add today.
3. Old International Republic
Old International Republic (ORI 0.31%) is a title insurer that also writes title insurance coverage used in real estate transactions to protect lenders or buyers from claims against a property’s title. The company has managed its underwriting risk well, with its combined ratio averaging 96% over the past 15 years.
Old Republic has paid a dividend every year for the last 81 years and has increased its dividend for the last 41 years. Its payout ratio of 54% is on the higher side compared to the two companies above, but is still manageable as long as it continues to write good policies. The company has a solid dividend yield of 4% and has managed its capital well for decades — making it another strong dividend stock you can trust.
Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.