There’s a reason Warren Buffett loves the insurance industry and it comes down to one word – float. Essentially, it’s the cash that an insurance firm holds while it waits to pay out claims. The float can be invested in safe assets while the interest it generates can be invested even further. And if you’re good at underwriting, that float never has to be paid out. It’s no wonder why the industry is such a cash flow and profit machine. And that is just the case with our latest pick in the financial sector.
Our pick is a top ten commercial/business insurance underwriter. This position has allowed it to produce strong results across its business lines for years, with three quarters of record ‘combined ratio’. And with that underwriting, our pick has also been a strong dividend grower for years. In fact, our pick’s underwriting has been so good that it’s been a consistent payer of yearly special dividends since 2014.
And it’s not done yet. Growth continues to be had from new commercial business lines and additional specialty insurance operations. Thanks to the pandemic, many firms are looking at adding additional protection, and our pick has been busy writing those policies. Better still, these specialty lines come with higher margins.
All in all, our pick is a top example of what an insurance stock – and what Buffett likes about them – is all about.
You can check out the Best Financial Dividend Stocks List to explore all the stocks.
