Finding the Best Dividends in Insurance

An insurance company can generate tons of cash. Just ask Warren Buffett; he built Berkshire Hathaway on the shoulders of insurance businesses. If you're unfamiliar with how this works, here's a very simplified version, using car insurance as our example: You buy a car insurance policy and pay monthly premiums to your insurer. The insurance company takes that money -- called the float -- and invests it. If you get in an accident, the insurance company pays your claim. If you don't, it keeps your money and continues to invest it. The investments that companies make with this money are incredibly important. In some cases, a company may pay out more in claims than it brings in on premiums -- but in the end, it's OK because the company invested the money wisely in the interim. These investments allow cash to build up over the years, which usually makes insurance stocks ripe for dividend payments. Dividend dynamos Let's look at six dividend stocks with three different metrics to evaluate. These metrics will allow us to see: The dividend yield -- how much bang for our buck we'll get. The payout ratio -- how sustainable the dividend is. The lower the number, the more sustainable it is. The dividend growth rate -- though the past isn't a perfect proxy for the future, this gives us an idea of whether we can expect to see a dividend increase in the future. All three of these metrics are important when evaluating dividend stocks.... Read more