AIZ - Assurant: My Peter Lynch Story But The Stock Is A Hold

2024-01-10 23:10:30 ET

Summary

• Assurant is an insurance company that offers property, casualty, and preneed insurance products.
• The company has a long history and has more than quadrupled since its IPO in 2004, while also paying increasing dividends since the IPO.
• AIZ is trading at a reasonable multiple and has recently increased its annual dividend by 3% on top of a new buyback program.
• After a 60% run in 10 months, I recommend waiting for a pullback before initiating a position.

Frequent readers of my articles are likely to recall that I am a big proponent of many of the investing techniques used by 1980s stalwart, Peter Lynch. One particular technique (AKA called common sense) is to dig deeper into companies whose products or services you use and are satisfied with as a consumer.

I used to be a GEICO auto insurance customer for many years before reluctantly leaving for another provider due to a nuance associated with a new property I purchased. I was more than satisfied with GEICO all those years and hence was glad to be able to go back shopping for both home and auto insurance policies recently. As always, I got a great quote and policy from GEICO for auto and the agent requested a couple of days to get back with the best quote on the home insurance policy after working with their partners. I was almost certain the quote was going to be from the usual suspects like Liberty Mutual and The Travelers Companies, Inc. ( TRV ) but was surprised to see a different name.

Enter the subject of this article, Assurant, Inc. ( AIZ ). My new home insurance policy is from Assurant. While it is too early to talk about my experience with the company, the policy has so far met my needs in terms of coverage, premium, and deductible. But the experience did make me curious about Assurant as an investment and I started digging into the company using the wealth of information on Seeking Alpha.

What Does Assurant Do?

Assurant operates in the financial sector dealing with multi-line insurance products, specifically property, casualty, and preneed insurance. I was surprised to see that the company's history dates back to 1892, although the company in its current form traces back to just 2004 when it went public at a valuation of around $2 billion. Two decades later, the company is now worth nearly $9 billion and is often included in many Fortune lists including recently being named as one of the most innovative companies recently.

Investment Thesis - Points

• Right off the bat, insurance companies are great investment vehicles. Not according to me but according to arguably the greatest investor of all time. Insurance premiums provide a steady, dependable, and recurring source of revenue for these companies and when managed properly, insurance companies can be extremely profitable. Assurant's investment portfolio is diversified and the interest/dividends from this portfolio form nearly 5% of the quarterly revenue.

• Assurant's revenue stream is from multiple segments with connected living and auto being the pillars when it comes to premium. Those two brought $8.2 billion in premiums in the 12 months ending September 2023. The residential sector (home + rentals) brought in about $2 billion.

• Assurant is trading at a reasonable forward multiple of 11.50, which while good on surface, surprisingly gets it only a D+ from Seeking Alpha's quant ratings. But, when you dig deeper , you find that Assurant's forward-looking ratings look better than its past did. I especially find the forward PEG of 0.79 attractive compared to the sector median of 1.45.
• Assurant has been paying increasing dividends for nearly two decades ( dating back to its IPO) and still has a forward EPS-based payout ratio of just 20%. The company recently increased its dividend by 3%, which falls flat against the current inflation but also suggests that the company is prudent in its cash allocation. This directly leads to the dividend grades below, which are spot on in my opinion: the near 2% yield is extremely safe and consistent but the dividend growth and yield can do better. However, I prefer my stocks to build my income slowly but surely/steadily over the long term rather than ever having to encounter a dividend cut.

• The company also announced a $600 million buyback program in November 2023. This continues the company's history of retiring shares to benefit shareholders, as the total shares count has gone down nearly 15% in the last 5 years.

• From a technical perspective, Assurant's stock is in a good place as it is trading above both the 100- and 200-day moving averages. Its Relative Strength Index [RSI] is in my preferred sweet spot of the 60s, which allows room for further runs while having enough technical support.

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