The company has been a very strong option for dividend growth investors over the last decade or so. Not only have they managed to grow the dividend at a 17% clip over the last few years, coverage ratios have remained very low with payout ratios in terms of earnings at the 30% mark and free cash flows at 18%.
The company doesn't yield much, but is easily one that could be missed just because of people screening for yield.
Double digit revenue growth and earnings growth over the last half decade, very strong returns on equity and returns on capital. The company also raised guidance recently, a strong sign of business operations.
Their MCR, or medical care ratio, came in at 83.2%. This is very similar to the combined ratio of which we explained with Intact Financial a few weeks ago in our newsletter. I'll grab a snippet of it:
"The combined ratio seems complex, but it really is very simple, as insurance companies are relatively simple businesses on the premium writing end of things.
The combined ratio compares the claim-related and non-claim-related expenses to the premiums generated. If a company has 90 cents in expenses relative to every dollar it generates in premiums, it's combined ratio is 0.90/1 = 90%.
Suppose we have a combined ratio above 100%. In that case, that means an insurance company is spending more on claims and other expenses than they are bringing in with collected premiums.
Although we can expect combined ratios over 100% the odd time, lets say in a case of high catastrophe losses, it can spell disaster for an insurer when they start to happen consistently."
With medical companies, it is simply comparing the premiums they collect relative to the healthcare services they provide. So, a low 80% ratio here tells us the lines of business are more profitable than a P&C insurer, which isn't all that surprising.
The company is currently on our watchlist as one of the top dividend growth stocks in the country. The one thing that concerns me is valuation relative to growth. I think the company is a tad too expensive right now. I'd be looking much deeper on a dip no doubt.