Dividend stocks can be an excellent source of income and appreciation for investors. But not all dividend-paying stocks are necessarily worthy of investment.
One criterion you can use to better judge a dividend stock's worthiness is by looking at the company's commitment to annual dividend growth. Companies that have raised their dividends for 25 years or more also happen to have outperformed the S&P 500 index by nearly 1 percentage point on an annualized basis.
Old Republic International(NYSE: ORI) is one dividend powerhouse stock that should be on investors' radars. The insurer currently offers an attractive 3.8% dividend yield and has grown its annual dividend every year for the past 42 years. Here's why it's not too late to buy this powerhouse dividend stock.
Old Republic's core business is this
Old Republic International underwrites insurance policies focusing on businesses, governments, and other institutions. The company primarily makes money on its policies, with general insurance making up 52% of its $8.3 billion in revenue last year. These policies are mainly in the U.S. and cover liability for industries like trucking, aviation, construction, healthcare, energy, and others.
The other major component of its business is title insurance. This type of insurance protects lenders or buyers in property transactions if a property has a claim against it for back tax liens or other claims. This business segment makes up 47% of its revenue and can do quite well when real estate markets are hot like they were a couple of years ago.
Image source: Getty Images.
How its business balances different parts of the economy
Old Republic has exposure to the real estate market through its title insurance segment, making it vulnerable to the cyclical swings in these markets. When real estate transactions boomed in 2020 and 2021, this segment did quite well, with revenue growth of 60% over those two years. Last year this business slowed down, and revenue from title insurance declined 13% at Old Republic.
Despite this, operating revenue grew 3.5% thanks to the stability of its general insurance business -- which saw revenue growth of 7.1% year over year. This balanced business is one reason that Old Republic achieved its long history of growing dividend payouts.
Old Republic navigated through bad and good times
It hasn't always been smooth sailing for the insurer. When evaluating insurance companies, one useful metric is the combined ratio. This is the ratio of expenses plus claims paid out divided by premiums collected. Insurers want this ratio under 100%, with a lower percentage indicative of more profitable policies.
Date source: Old Republic International. Chart by author.
From 2007 through 2012, Old Republic's combined ratio averaged 113%. During this period, the insurer suffered losses due to the real estate crisis's impact on its policies, specifically its mortgage guaranty and the consumer credit indemnity policies. Even with these five years of unprofitability, Old Republic still raised its dividend every year -- a testament to the company's balance sheet management and commitment to growing its payout consistently.
Since then, the insurer has returned to its profitable ways. Over the last decade, Old Republic's combined ratio averaged 94.6%, beating the property and casualty industry average ratio of 99% in the same period. Old Republic has done a stellar job of managing its business and balance sheet so it can deliver for its investors -- making it a solid dividend stock to buy today.
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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
