A Pair of Undervalued Insurers Offering Double-Digit Returns

A look at two insurance companies trading at discounts to their intrinsic values and pay a higher-than-typical dividend yield

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Dec 26, 2021
  • Allstate's most recent dividend increase was a massive 50% raise from the prior year.
  • The company has a very low payout ratio.
  • CNA Financials' dividend growth has been inconsistent, but the CAGR is still in the double digits over the last decade.
  • The company also has a habit of paying out a generous special dividend.
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The insurance industry can be cutthroat as customers face very little in the way of switching costs when choosing between providers. This means that insurance companies have to have prudent underwriting policies as the motivation to underprice policies to generate further growth could have a significant impact if claims were to be high.

We will look at two leading insurance companies providing market-beating yields while trading below their respective intrinsic values.


First up is the Allstate Corp. (

ALL, Financial), which is a leading insurance company that provides auto, home, life and health insurance products. Allstate uses a variety of brands to appeal to consumers, such as its namesake brand and Esurance. The company has a $32 billion market capitalization and generates revenue of $37 billion annually.

Allstate has seen earnings per share increase with a compound annual growth rate of almost 31% over the last decade. Part of this growth can be explained by a low starting base in 2011, but the five-year CAGR is still robust at almost 25%. A lower share count has aided earnings growth, but net profit has improved at an annual rate of 21% since 2016, so Allstate is seeing a high level of growth in its business.

This growth has enabled Allstate to grow its dividend as well. The company’s dividend growth streak now stands at nine years following a massive 50% increase for the April 1 payment. The dividend has a CAGR of nearly 13% for the last decade.

Shareholders received $3.24 of dividends per share this year, giving the stock a yield of 2.9%. This is more than twice the average yield of the S&P 500 Index and superior to the stock’s own average yield of 2.1% since 2011.

Allstate did cut its dividend in 2009 and 2019 as well as 2013, so the dividend growth hasn’t always been the most consistent. That said, the company appears to be in much better shape today compared to that period as the payout ratio is very low. Wall Street analysts expect the company will earn $13.33 in 2021, resulting in a predicted payout ratio of just 24%, which is in line with the 10-year average payout ratio of 25%.

Shares of Allstate trade at $113.42, implying a forward price-earnings ratio of 8.5. The stock has a 10-year average price-earnings ratio of 10.3. Excluding the artificially high multiple in 2011 that occurred following a steep decline in earnings per share, the average rises to just over 9 for the period. Still, shares trade at a decent discount to the average valuation.

The discount deepens when using the GF Value chart.


Allstate’s GF Value is $134.25 at the moment, giving the stock a price-to-GF Value of 0.84. Shares of the company could return 18.4% if they were to trade with the GF Value. Factor in the dividend yield and total returns could be in the low 20% range.

CNA Financial

Next is CNA Financial Corp. (

CNA, Financial), which specializes in providing property and casualty and life and group insurances. Loews Corp. (L, Financial) owns nearly 90% of the shares with voting rights. CNA Financial is valued at $11.7 billion and generates revenue of $7.6 billion per year.

Earnings per share have a CAGR of just 1.9% over the last decade, though this includes 2020, which saw a negative impact from the Covid-19 pandemic. Using the prior 10-year period, earnings had a CAGR of 5.6%. Much of this growth was due to improvements in the business as the share count has held very steady.

CNA Financial also has a checkered dividend growth history. The company eliminated the payment altogether in 2009, before reinstating it in 2011. The dividend was then raised for several additional years before being held constant from 2014 through 2016. Growth returned the next year. Investors should note the company often distributes special dividends in addition to its quarterly distribution. Last year the special dividend was 75 cents, but was $2.00 for the prior six years. Overall, the dividend, not including special distributions, had a CAGR of 15.6% from 2011 through 2020.

The company raised its dividend 2.7% for the March 12 payment, giving CNA Financial its fifth consecutive year of dividend growth. The stock yields 3.5% today, which is superior to it’s long-term average yield of 2.6%.

Not including the special dividend, CNA Financial distributed $1.52 of dividends per share in 2021. With analysts expecting the company to earn $4.07 per share this year, the projected payout ratio is 37%. For context, the average payout ratio over the prior decade was 35%.

CNA Financial trades at $44, equating to a price-earnings ratio of 10.8. This compares favorably to the 10-year average multiple of more than 13 times earnings.

The GF Value chart shows potential upside in the name as well.


CNA Financial has a GF Value of $49.02, giving the stock a price-to-GF Value of 0.90. Reaching the GF Value would result in a 11.4% increase in the value of the stock. With just the base dividend added to this, the total returns could be in the mid-teens range. The special dividend would only add to the total returns.

Final thoughts

Many investors typically think of insurance stocks as boring, but they can produce some impressive total returns. Allstate and CNA Financial are two names that are trading below both their long-term average multiples and their intrinsic values. Both stocks could provide double-digit returns, pay a higher-than-usual dividend yield and are rated as modestly undervalued by GuruFocus. Neither company has seen its dividend grow in a straight line, but the payout ratios are very healthy.

This suggests and Allstate and CNA Financial could be attractive to those investors looking for a combination of growth and income from the insurance industry.


I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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