It’s easy to forget that Warren Buffett has used the insurance business model to drive Berkshire Hathaway to great success. After all, the insurance industry basically uses other people’s money to help generate plenty of cash flow and interest. The secret to Berkshire’s success is in using that float to buy stocks and other assets. For those insurance firms skipping the heavy reliance on bonds, like our latest Best Dividend Capture Pick, it means equally great results.
You can check out the Best Dividend Capture Stocks List to explore all the stocks.
As we said, our pick is in the insurance industry. Specifically, our pick is an underwriter of property & casualty 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. This bread & butter insurance generates plenty of premiums and additional float that pads our pick’s profits, and ultimately, its shareholder rewards.
The secret is just what our pick does with all that cash and float.
Like Berkshire, our pick doesn’t just stick to treasury bonds and T-bills. It also uses all that float and invests it in the stock market and other asset classes. This helps generate extra returns for our pick. So much so, that underwriting becomes less of a profit driver than investment gains.
The win is that our pick has been great on the underwriting front as well. Thanks to new technology upgrades and models, our pick has continued to see strong underwriting growth, even during catastrophes such as the pandemic and California wildfires. At the same time, our pick has continued to move into specialty P&C insurance. Underwriting new risks comes with higher premiums, which in turn leads to more investment and a bigger float portfolio. The result is our pick continues to drive profits and gains for its shareholders.
With that in mind, our pick has become a cash flow champion and strong dividend payer. One that investors have made into an excellent dividend capture play as well. 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, September 22, our pick is primed for the strategy, as is evident from its historical track record of a recovery period within an average of 2.6 days after going ex-dividend.
For investors looking for a quick total return of income and capital appreciation, our latest P&C insurance pick could be a lucrative option.
