There’s a reason why Warren Buffett used an insurance company to build out his empire. The boring sector throws off plenty of cash flow and interest as premiums are collected before they are paid. And if they are never paid out, the more the merrier. For successful firms in the industry, like our latest Best Dividend Capture Pick, it can mean decades worth of rising dividends and increasing shareholder rewards.
You can check out the Best Dividend Capture Stocks List to explore all the stocks.
While our pick doesn’t have decades worth of dividends under its belt, it’s well on its way. As a new spin-off, our pick has just begun its stand-alone journey. But in a short amount of time, it’s managed to raise its payout constantly over the last few years. The secret to its success remains its specialty insurance niche.
Its primary business is providing private mortgage insurance. Many banks and federal agency lenders require homeowners to pay for private mortgage insurance until they hit a certain amount of equity within a home. If they default, the bank or federal entity backing the loan will be made whole, or at least provide some payment for their efforts. The win for our pick is that most homeowners will never use this insurance. The win for our pick is that this creates a steady cash flow-heavy business that lends itself to dividends.
Our pick has continued to find growth within its niche as well.
This has included boosting its reserves, increasing its credit rating, and smartly using reinsurance to reduce its risks. Additionally, the adoption of underwriting technology and higher interest rates has led to substantial gains in premiums and its investment portfolio.
The result is that our pick is quickly growing its leadership position within the mortgage insurance industry and becoming a big player. And with that, investors have taken notice, and it has become a top-notch 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, May 19, our pick is primed for the strategy, as is evident from its historical track record of a recovery period within an average of 3.7 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.
