With the kids back to school and my younger kids not wanting to stay in their beds at night it has been difficult to write. Getting up earlier means getting to bed earlier (if I want to stay healthy.) With the current situation I am down to about 1/2 hour of free time just to catch up with my wife and relax a little. Hopefully everyone will get back into a rhythm and I will have more time to dedicate to one of my favorite activities, investing. For my July ranking there was a large number of insurance companies in the top 25. Horace Mann Educators Corp. was one I had not heard of and ranked pretty high on the DFG scale. Let's take a closer look as to why.
The website has it has the Forbes 2014 America's MOST TRUSTWORTHY Companies 2 years in a row. It was founded by teachers for teachers. The name comes from the father of American public education system, Horace Mann. It provides different type of insurance to educators and educational institutions (think school districts, etc.) With more than 7 billion in assets they aren't doing too bad as a company. Progressive Insurance says it has over 15 billion in annual premiums for comparison. Unfortunately PGR cut their dividend in 2013 so they are off the list.
There seems to be quite a few insurance companies with good valuations even in this market. Yahoo has the Trailing P/E at 11.16 with the Forward P/E up a little at 11.55. I usually look for value under 20 P/E but I am thinking to narrow it down to companies under 18. The price to anything is hovering around 1 which is also what I like to see. Lots of sales with the TTM at 1.18 and PEG at .93. The Property & Casualty Insurance industry stats have the P/E at 18.9. All good signs HMN is undervalued.
Wow had to double check this one but it has a 58% growth rate over the past 5 years. Slows down a bit when looking into the future with the forecast at 12.7% over the next five years. This is not bad for an insurance company of this size. Earnings over the past twelve months is not bad at 2.53 with things a little better next year with an estimate of 2.58. When you look at the stock price this is pretty decent but my ranking looks at a flat number right now so it almost knocked it out of the top 100 for growth.
How does management do is one way of looking at quality. Managing the finances well usually leads to a good next category. So when this is ranked higher I typically expect to see good things when looking at the numbers for yield. Price-to-book was 1.01 for the most recent quarter and the Debt-to-Equity ratio was also low at .22. All good numbers and not only point to quality but a good value as well. This company you buy has less risk with a low amount of debt on its books. With the way industry does business the P/B is usually low. It is around 1.9 so HMN beats that out.
I do look for good companies with the highest yield possible. HMN was at 3.20% today beating the industry average of 2.0%. That .92 cents a share will continue to buy me candy bars well into the future. Looking into the past they have been aggressive with dividend increases. Over the last 5 years it has been double digit happiness of 16.2%. The big concern is it is just a Challenger. Having cut dividends in the great recession timeframe (2008) is a definite warning sign. Have they changed their ways?
There is nothing I can find about this company that I don't like except for the dividend CUT in 2008. Maybe I should stick to Contenders or Champions as they have a longer track record and have gone through a few cycles. If I were to invest in them I would keep my eye open for any news or lack of cash flow that would signal a cut coming. With the payout ratio at 32.90% that is unlikely. Plenty of room for the dividend growth rate to stay in the double digits as long as the economy doesn't tank. I wonder what the ratio was in 2008? If anyone knows where to find that data let me know.
Insurance industry looking good to you or wait?
Full Disclosure: I do not own this stock.