Dividend Investing: Allianz (AZSEY)

Investing in stocks that pay high dividends is an effective way for the conservative investor whose concern is mainly with the preservation of capital. When investing for a high dividend yield, the most important consideration is the sustainability of such dividends. Hence research into the underlying dividend payer is crucial.

Please be advised I’m not making any tacit recommendations. Any investor who is contemplating investing for a high dividend should use these articles a base from which to do further research and in depth analysis.

A look at the insurance sector often provides steady, high dividend and cash flush stocks with which to work. Large insurance companies by definition pay out high dividends because of their regulated inability to pursue high return and potentially higher risk investments. The notable exception is of course Berkshire Hathaway (BRK.A), which pays no dividends at all.

Recently I got interested in Germany-based financial services giants Allianz SE (AZSEY), which is an integrated financial services provider. With 153,000 employees worldwide, the Allianz Group serves approximately 75 million customers in about 70 countries. On the insurance side, Allianz is the market leader in the German market and has a strong international presence. Allianz SE operates through four broad categories, which include Property-Casualty, Life/Health, Asset Management, and Corporate. The Company offers a variety of insurance products to both private and corporate customers, including motor liability and own damage, accident, general liability, fire and property, legal expense, credit and travel insurance. In addition the company offers a range of life and health insurance products on an individual and group basis. The Company acts as a global provider of institutional and retail asset management products and services to third-party investors and provides investment management services to the Allianz Group's insurance operations.

Allianz trades at a PE ratio of 8.85 times, which is half the industry average of just over 15 times. The price to sales ratio is at 0.46 times and interestingly the stock is trading at almost book value. The company did not escape the turmoil of 2008 and posted a $3.3 billion loss. However, this was more than compensated for by the profit of $5.8 billion generated last year. Given the fact that Allianz is a $50 billion company (Travelers – TRV- is worth $26 billion while Allstate (ALL) is worth $18 billion), Allianz handily managed the downturn much better than almost all its competitors both domestically and internationally.

The dividend last year came in at $0.55 per share, producing a dividend yield at the current price of $12.43 of 4.43%. This is the second highest of all insurance companies listed on the American stock exchanges with a market cap greater than $5 billion. Allianz also produces a Return on Equity of 12%, which is much higher than the industry average which is actually negative. The company’s debt has dropped to $23 billion, the lowest it’s been in five years, representing a debt to equity ratio of 43%. Last year the company generated $18 billion in cash and paid out only $2.2 billion of this in the form of dividends.

For the past give years the company has continually made money from its insurance underwriting which is very unusual in amongst its peers. Investment income has provided strong kickers but the company has not lost money on underwriting insurance over that five year period. This indicates a strong understanding of risk and bodes well for stockholders.

The outlook of the industry is positive given rising equity and fixed-income markets, slightly more claims than usual and an elimination of global competition (the practical elimination of AIG as Allianz’ main competitor in many markets).

In summary, Allianz is a great company, paying a good dividend, with a handle on risk management and prudent investing.