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Each year, we individually review each of the Dividend Aristocrats, a group of 69 stocks in the S&P 500 Index that has raised their dividends for at least 25 consecutive years.

To make it on the list of Dividend Aristocrats, a company must possess a profitable business model with a valuable brand, global competitive advantages, and the ability to withstand recessions.

This is why Dividend Aristocrats can continue raising dividends in difficult years.

Erie Indemnity Company (ERIE) is among the new additions to the Dividend Aristocrats list for 2025.

This article will examine Erie’s business model, growth prospects, and whether we are currently rating the stock as a buy, sell, or hold.

Business Overview

Erie Indemnity is an Erie, Pennsylvania-based insurance company. It has established itself in life insurance, auto, home, and commercial insurance. The company’s history dates to the 1920s.

Erie Indemnity reported its third quarter earnings results on October 31. Revenues totaled $999 million during the quarter, which was 16% more than the same quarter the previous year.

Revenue growth was driven by higher management fee revenues (for policy issuance and renewal services) to a large degree, which rose by 19% year over year. Administrative services fee revenue grew 6%.

Investment income was up substantially on a year-over-year basis during the quarter, which can be explained by tailwinds from higher interest rates.

Erie Indemnity generated GAAP earnings-per-share of $3.06 during the third quarter, which was up by 20% year-over-year.

The current estimate for this year’s earnings-per-share is $11.50, which would be the best year in Erie Indemnity’s history.

Growth Prospects

Erie increased its earnings-per-share by 11% annually between 2014 and 2023. Like other insurance companies, Erie Indemnity has a sizable float – cash that it has received through premiums and that it needs to invest.

The company’s financial results are dependent on market rates, such as treasuries.

With interest rates rising in the recent past, Erie Indemnity experienced a big profit increase in 2023, and another big increase is expected for the current year.

Recently, Erie Indemnity has achieved appealing revenue growth, and we believe that revenues should grow in the foreseeable future. We believe that Erie Indemnity should be able to grow its profits at a mid-single-digit pace throughout the coming years.

Growing revenues are one growth driver, while further increases in investment income could have a positive impact on the company’s profit growth as well.

We expect Erie to grow its earnings-per-share by 5%-6% per year over the next five years.

Competitive Advantages & Recession Performance

Erie Indemnity is not a huge insurance company, in relation to its peers. Therefore, it does not have any major scale advantages over its competitors.

But it was, compared to many other insurance companies and financial corporations, relatively stable during the Great Recession, which is a positive from a risk perspective.

Its earnings took a hit, but the company managedto remain profitable and was able to raise its dividend.

Erie’s earnings-per-share during the Great Recession are below:

• 2007 earnings-per-share of $3.43
• 2008 earnings-per-share of $1.19 (65% decline)
• 2009 earnings-per-share of $1.89 (59% growth)
• 2010 earnings-per-share of $2.85 (51% growth)

While Erie certainly felt the pain from the Great Recession, its earnings rebounded fairly quickly and the company remained profitable throughout.

Unlike many other financial companies, Erie Indemnity did not cut its dividend during the Great Recession. Instead, the company continued to raise its payout even during those troubled years, keeping its dividend growth track record intact.

Therefore, it is clear that Erie is exposed to recessions due to operating in the financial sector. But it also has a history of recovering from downturns well.

Valuation & Expected Returns

Based on expected 2024 earnings-per-share of $11.50, ERIE shares are currently trading for a P/E ratio of 35. This is above the stock’s 10-year average P/E of 32.

Based on Erie Indemnity’s past record and the forecasted earnings-per-share growth rate, we believe that the company’s shares should be valued at around 22 times net earnings.

As a result, ERIE stock looks significantly overvalued today. If the valuation reverts to 22 over the next five years, shareholder returns would be reduced by -8.9% per year over that period.

Shareholder returns would be positively boosted by earnings-per-share growth and dividends. We expect Erie to generate earnings-per-share growth of 5.5% per year.

Next, shares are currently yielding 1.4%. Putting it all together, total returns are expected at -2.0% per year. With negative expected returns, we rate Erie stock a sell.

Final Thoughts

Erie Indemnity has grown its earnings-per-share consistently over its history. The company is likely to set a record for its earnings-per-share in 2025. The long-term growth outlook is solid.

However, the high valuation is a significant headwind for Erie Indemnity’s forecasted total returns. Erie Indemnity looks like a relatively stable insurance company fundamentally, but the high valuation causes shares to earn a sell recommendation at current prices.

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