The insurance sector is a thing of beauty. Not many business models allow you to have a steady flow of cash you can invest and reinvest to make profits before you actually have to provide the service. This is why Berkshire Hathaway has been a powerhouse over the last few decades. But Berkshire isn’t alone. There are numerous insurance firms, like our latest Best Dividend Capture Pick, that have been delivering steady gains and dividends to their shareholders for decades.
You can check out the Best Dividend Capture Stocks List to explore all the stocks.
Like Berkshire, our latest pick operates as an underwriter of insurance. In this case, it’s property & causality insurance (P&C). The P&C market is what most of us think of when it comes to insurance: products designed to reduce risks with life, home, auto, and other assets. These types of assets form the bread & butter of the industry, providing our pick steady cash flows from premiums collected.
The trick is what happens next.
Our pick has continued to use those premiums to its advantage. As it waits to pay out claims—hopefully never—our pick has been smart with its investment of those premiums. While regulations require much of an insurance company’s premiums and float be tucked away in safe assets, the interest generated from the float can be used according to the company’s discretion. For our pick, it equals a hefty dose of equities and other high-growth asset classes like private credit and real estate. This has allowed the firm to generate high profits even in years that show poor insurance underwriting losses, such as the pandemic and California wildfires. Moreover, the firm has been successful at generating premium growth through the use of new lines of speciality and commercial P&C insurance. Insuring special risks comes with higher premiums that, in turn, generate more investment income.
The combination of smart investment strategies and growth in premium lines of insurance has resulted in plenty of shareholder rewards over the last six decades. As a result, our pick has become a wonderful dividend capture play. A dividend capture strategy involves buying a stock before its ex-dividend date and then selling it after it has recovered the payout. With an ex-dividend date of Monday, June 23, our pick is primed for the strategy, as is evident from its historical track record of a recovery period within an average of 4.1 days after going ex-dividend.
For investors looking for a quick total return of income and capital appreciation, our latest insurance pick could be a lucrative option.
