By nature, insurance is one of the most boring industries. But watching the paint dry can be very beneficial for portfolios and dividend investors. Successful insurance operations can generate plenty of cash flows from both underwriting and investment portfolios/floats, which can provide years’ worth of steady dividend payments. Our latest Best Dividend Capture Stocks List’s pick has the hallmarks of being one of those insurance firms.
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Our pick is a new standalone entity. Our pick has been set free after spending years trapped within a dying organization. Already, it’s managed to grow its dividend. The secret to its success is its primary business of 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. It’s a steady cash flow-heavy business that most homeowners will never use.
For our pick, that has been great for its future potential.
Our pick has also used its new standalone status to improve its fortunes. 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 have led to substantial gains in premiums and its investment portfolio. Our pick has cast off its former parent in a big way to become a future leader in the insurance sector.
With growth potential, strong cash generation, and freedom from its former struggling parent, our pick has continued to find investor support. As such, it 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 Friday, February 21, our pick is primed for the strategy, as is evident from its historical track record of a recovery period within an average of 4.0 days after going ex-dividend.
For investors looking for a quick total return of income and capital appreciation, our latest specialty insurance play could be a lucrative option.
