American financial groupAFG’s Board of Directors approved a special payment dividend of $2.00 per share. Shareholders of record as of March 15 will receive the special dividend on March 22.

This special dividend is in addition to the insurer’s quarterly dividend of 56 cents per share that was paid on January 25, 2022. This Zacks Tier 2 (buy) P&C insurer estimates it will spend $170 million on the special dividend, which is supported by its strong financial position.

Since 2012, American Financial pays special dividends. With the latest approval, the P&C insurer will pay 18 special dividends over 11 years.

In October 2021, AFG increased its quarterly dividend by 12% in its concerted effort to improve shareholder value, which marked the 17th consecutive year of dividend increases. Historically, the insurer has enjoyed a steady increase in dividends, with the metric showing a six-year CAGR (2017-2022) of 10.4%. Its dividend yield of 1.7% outperforms the industry average of 0.3%, making the stock an attractive choice for investors looking for yield.

Along with the special cash dividend and regular dividend hike, the P&C insurer remains committed to returning excess cash to shareholders through share buybacks.

In 2021, the insurer paid $2.4 billion in dividends, including $2.2 billion in exceptional dividends and $176 million in quarterly dividends and carried out share buybacks of $319 million.

American Financial has traditionally maintained moderate adjusted leverage around 20%, with a good cash flow and interest coverage ratio. As of December 31, 2021, excess capital was approximately $2.1 billion, which includes parent company cash and investments of nearly $1.9 billion. The insurer obtains good results from the rating agencies.

AFG’s excess capital provides the financial flexibility to make opportunistic buyouts, pay additional special dividends and grow the specialty P&C insurance business organically and through acquisitions and start-ups.

AFG estimates that by the end of 2022, nearly $750 million of excess capital will be available for stock buybacks and exceptional dividends.

In 2021, operating return on core equity improved 940 basis points year-over-year to 18.6%. The P&C segment’s solid operating profitability, excellent investment performance and efficient capital management should continue to support shareholder returns.

Shares of American Financial have risen 19% over the past year, outpacing the sector’s 11.8% growth. Superior underwriting discipline and a sound capital structure should help it maintain momentum.

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Given the strong level of capital in the insurance industry and the improving operating environment supporting strong operating performance, insurers like AON PLC Aon, The Allstate Company All and Chubb limited CB used effective capital deployment to build shareholder value in February 2022.

While Aon ran out his luck dividend by 10% and approved a new $7.5 billion share buyback program, Allstate’s board of directors approved a 4.9% increase in its annual dividend. Chubb’s board has proposed a 3.7% dividend increase.

Aon’s current dividend yield is 0.7%. Strong liquidity backed by a strong balance sheet and solid cash flow has allowed Aon to not only support growth initiatives such as buyouts and collaborations, but has also paved the way for accelerated and prudent capital deployment measures .

2.8% Allstate dividend the yield exceeds the industry average by 0.3%, making the stock an attractive choice for investors looking for yield. Allstate’s strong balance sheet supports the efficient deployment of capital. In addition to the financial strength, the deployable capital generated by the insurer’s divestment of the life and annuity businesses that closed in November 2021 enabled Allstate to continue such robust capital deployment moves.

Chubb Limited’s dividend a return of 1.6% beats the industry average of 0.3%. Chubb has maintained a strong balance sheet and financial flexibility, including consistent cash flow generation, over the past few years. The insurer’s cash flow has increased over the years. This paved the way for prudent capital deployment measures.

Shares of Aon, The Allstate and Chubb have gained 27.2%, 7.7% and 19.1% respectively in one year.

You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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