This Outperforming Dividend Aristocrat Still Looks Cheap

During Q1 of 2024, the U.S. economy experienced its most sluggish growth in almost two years. Plus, with the Federal Reserve holding off on interest rate cuts until inflation steadies, dividend stocks could offer investors a sense of stability amid an uncertain market backdrop.

Cincinnati Financial Corporation (CINF) belongs to the group of “Dividend Aristocrats” that have raised dividends for at least 25 consecutive years. The stock has pulled back from its 52-week highs achieved on March 28 and is priced at a compelling discount, standing out as an ideal pick for investors seeking reliable dividend income. 

Let’s take a closer look.

AboutCincinnati Financial Stock

With a market cap of over $18.2 billion, Ohio-based Cincinnati Financial Corporation (CINF) primarily operates in the property casualty insurance sector. The company offers a comprehensive range of insurance solutions, covering commercial casualty, property, auto, workers' compensation, life insurance, and investment management services.  

Shares of Cincinnati Financial have surged 12.7% on a YTD basis, surpassing the broader S&P 500 Index’s ($SPX)gain of 7.6% and the S&P 500 Dividend Aristocrats ETF's (NOBL)modest 2.5% returns over the same time frame. 

Cincinnati Financial's remarkable 63-year streak of raising dividends annually since 1961 places it among a select few U.S. companies. This exceptional feat has crowned it a "Dividend King," showcasing its dedication to rewarding shareholders. 

Last month, Cincinnati paid its shareholders a quarterly dividend of $0.81 per share, representing an 8% increase from the previous quarterly dividend of $0.75 per share. The company offers an annualized dividend of $3.24 per share, resulting in a dividend yield of 2.79%. Also, the company maintains a healthy dividend payout ratio of 44.5%.

Apart from its enticing dividend yield and rich history of returning value to its shareholders, the stock’s affordability adds another feather to its cap. CINF stock is trading at 18.20 times forward earnings and 1.83 times sales, a roughly 20% discount to its own five-year averages. 

Cincinnati Financial’s Strong Q1 Beats Wall Street Projections

On April 25, the company reported its Q1 earnings results, which surpassed Wall Street projections on the bottom lins. Its total revenue of $2.9 billion rose approximately 31% annually, though it fell just short of  Wall Street’s estimate for $2.32 billion. However, its non-GAAP operating income, adjusted for investment gains, jumped 93.3% year-over-year to $1.72 per share, topping analyst estimates by 1.8%.

Chairman and CEO Steven J. Johnston highlighted that the company's book value per share surged to a historic peak of $80.83, up 5% since the conclusion of 2023. This notable surge reflects the company's robust financial health and substantial asset growth. 

Moreover, consolidated cash and total investments approached the impressive sum of $27 billion. With this substantial capital at its disposal, the company has the capacity to implement its long-term strategies and uphold its commitment to distribute dividends to shareholders.

Even though the company refrained from offering any guidance, analysts tracking Cincinnati Financial expect the company’s profit to reach $6.37 per share in fiscal 2024, up 5.6% year over year, and grow another 8.5% to $6.91 in fiscal 2025. 

What Do Analysts Think About Cincinnati Financial Stock?

CINF has a consensus “Moderate Buy” rating. Out of the nine analysts offering recommendations for the stock, three advise a “Strong Buy,” one suggests a “Moderate Buy,” and the remaining five give a “Hold” rating. 

The average analyst price target for the stock is $130.62, indicating a modest potential upside of 12% from current price levels. However, the Street-high price target of $143 suggests a 22.6% upside potential.