Perhaps one positive outcome of the financial meltdown of 2008 is the clear line that's been drawn between companies that have real financial strength and those that are lightweights. In a number of market sectors and subsectors the wheat has been separated from the chaff, and investors are discovering just who's tough enough to weather a crisis.
Let's look at a few high-yielding insurance companies that have shown their resilience and offer good fundamentals.
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Acquiring New Businesses
Two recent news items about Universal Insurance Holdings (NYSE:UVE) gave investors confidence the company's shares would continue to rise. The first is UVE's acquisition of ICAT Specialty Insurance Company, a supplier of disaster insurance to hurricane-prone regions, and secondly, UVE had a year-over-year increase of 2.7% in total direct premiums earned.
If that's not sufficient reason to buy the stock, a dividend yield of about 10% and a trailing P/E ratio of only five certainly sweetens the deal. Ratings agency A.M. Best gives a financial strength rating of "A" (excellent) to Universal Insurance. The company will very shortly be added to the Russell 3000 stock index.
Explosive Earnings Growth
Safety Insurance Group, Inc. (NASDAQ:SAFT) is primarily a provider of automobile insurance in Massachusetts. SAFT's stock yields 5.3% and trades with a trailing P/E ratio of about 7.7. This week, A.M. Best affirmed Safety Insurance's financial strength rating at A.
Safety Insurance also boasts annual average earnings growth of 35.4% over the past five years and is 77% institutionally held.
Healthy Yield and Valuation
Mercury General Corporation's (NYSE:MCY) stock is up about 40% since March and still yields a healthy 7.4% annually. Key valuation ratios are also strong. Price to book is a solid 1.10 and price to sales a mere 0.68. The company recently instituted a number of cost-cutting measures, including a salary freeze and layoffs, that investors appear to have applauded.
Insiders, too, seem excited about the company's prospects, having purchased over half a million dollars of Mercury shares in just March of this year. The company operates in California and is also primarily a writer of auto insurance policies. (Find out why the trading activity of owners and executives can be a valuable trade-confirmation tool in our article Can Insiders Help You Make Better Trades?)
The Wrap
Far from being a complete washout, the financial sector offers investors strong opportunities for profit. And within the auto and property/casualty sector, certain issues are definitely worth considering. Those listed above offer the benefit of reliable, above-average dividend payouts.
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