Insurance companies are stocks, which should be in everyone’s dividend portfolio. I personally have 3 of them in my fund, which are Old Republic International (ORI), Principal Financial (PFG) and Uniqa Insurance an Austrian insurance company. Also, they are Warren Buffets’s favorite kind of investments. In the following analysis, I will have a deeper look in Prudential Financial, to see if it is worth an investment sooner or later.

Overview

Prudential Financial Inc. (PRU) is a multinational financial services company that offers insurance, investment management, and real estate services to its retail and institutional customers. Notable products and services provided include life insurance, annuities, mutual funds, pension and retirement-related investments, administration and asset management, and securities brokerage services. The company is based out of Newark, New Jersey and was founded in 1875. Prudential Financial is largely affected by interest rates and foreign currency exchange. Prolonged periods of low-interest rates could take a toll on Prudential Financial’s profitability.

Dividend Data

PRU has been paying a dividend since 1996 and increased them since 9 years. This is not a long history of dividend payments but the constant dividend increases since 2009 shows the changing dividend philosophy of the company.

Dividend: Currently the company pays a yearly dividend of 3.60 USD which equals a yield of 4.42%. The latest dividend increase was at 20.0%, which is way above my goal to have an average dividend increase of 7.5%.

Payout Ratio: The current payout ratio is at 29.7%, which is on very low and healthy level and more importantly it leaves enough room for future dividend growth. The next dividend pay data will be in March and the ex-dividend data around the 20th of February.

Stock Price

Looking at the chart of PRU is kind of scary, the price is down by 35.98% from its 52 week high, which makes the stock very cheap. The share price is now more or less on the same level than it was 5 years ago.

Valuation

Price/Earning: The current P/E ratio is currently at 5.06, the 5-year average is at 12.41. So based on the P/E the stocks seems to be very cheap. Also, the forward P/E ratio is way below the 5-year average and is at 6.31.

Price/Book: Similar to the P/E the price/book ratio makes the stock appear to be very cheap. The current P/B ratio is at 0.72 compared to its 5 year average of 0.89.

Free cashflow: The company has enough free cashflow to cover the dividend and to increase the dividend in the upcoming years. In the year 2017, the free cashflow per share was 14.72 USD.

Debt/Equity: The current debt/equity ratio is at 0.39 so as well on very healthy level. Also looking at their debt level you can see that it did not much in the last 5 years.

Growth: For 2018 the median EPS expectations are at 12.16 USD per share and for 2019 at 12.90 USD per share. In the upcoming 5 years, analysts expect an average yearly growth of 3%.

The average price expectation for PRU are at 115.01 USD, which gives it an upside of 42.1%.

Conclusion

So having a look at the valuation, the price seems to be on a very cheap level and is for me definitely a good buying opportunity at the moment. An important fact is, also the potential dividend growth and the current payout ratio, which are both very positive. Especially looking at the current yield I somehow can not really understand the share price at the moment.

Given the fact that I already have 3 other insurance companies in my portfolio, I am probably thinking about adding 15 shares of PRU to my fund. This will add 54 USD to my annual dividend income. In the end my expectation for the dividend increase in February 2018 is an increase of 4 USD per share, which equals 11.1%.