I've had Travelers Companies Inc. on my watchlist since the beginning of 2015. I really wanted to add Travelers Companies to my Dividend Dreams Portfolio but I have been waiting for a dip in price. A dip came in June but I did not have a buy order in place so I missed an entry at $95.86. Earlier this week another buy opportunity came about when TRV stock dropped again. I purchased 30 shares of Travelers Companies Inc. (NYSE: TRV) for $98.93 per share, totaling $2,977.12. This purchase adds $73.20 to my annual dividend income. Why did I buy Travelers Companies? It's no secret that I like Insurance stocks. In fact I think insurance companies are a very safe bet. If I had to choose an insurance company over a bank I would choose an insurance company every time. Travelers is the third insurance company in my portfolio behind, Aflac and MetLife. Founded in 1853, Travelers is one of the oldest insurance companies in the United States. Travelers Companies is the second largest writer of U.S. commercial property casualty insurance. The image below illustrates the strength of Travelers commercial insurance market share. The company is number 1 or 2 in 31 states.

Source: www.travelers.com

Additionally, Travelers is the third largest writer or personal insurance in the United States. In 2014 the company assets and shareholder equity were valued at over $103B and total revenue was $27B. Travelers has a seasoned management team at the helm and it is the only property casualty company in the Dow Jones Industrial Average. Exceptional products and leadership, market share, strong revenue and assets, and a growing dividend. This is my kind of company.

Travelers Companies Overview

The Travelers Companies, Inc. is a holding company. Through its subsidiaries, the Company is engaged in providing a range of commercial and personal property and casualty insurance products and services to businesses, Government units, associations and individuals. The Company has three operating segments: Business and International Insurance segment, Bond & Specialty Insurance segment and the Personal Insurance segment. Business and International Insurance segment offers a range of property and casualty insurance and insurance related services to its customers, primarily in the United States, as well as in Canada, the United Kingdom, the Republic of Ireland and throughout other parts of the world. Bond & Specialty Insurance segment provides surety, crime, management and professional liability coverages, and related risk management services. Personal Insurance segment includes a range of property and casualty insurance covering individuals' personal risks. Source: www.schwab.com.

To learn more about the Travelers Companies visit the About Us section of the company website.

Travelers Companies Dividends

• Annual Dividend Yield of 2.47%
• 5-Year Dividend Per Share Average of $1.78
• 5-Year Dividend Yield Average of 2.47%
• 3- Year Dividend Growth Rate of 10.6%
• 5- Year Dividend Growth Rate of 11.8%
• 10- Year Dividend Growth Rate of 6.4%
• Payout Ratio of 21.35%
• Dividend Coverage Ratio (TTM) of 468.34

The chart below shows the past eight years of annual dividends for the Travelers Companies. This chart illustrates managements commitment to investors through dividend payouts and increases. TRV has a 5-year dividend growth rate average of 11.8%. Additionally, the company increased quarterly dividends 10.9% in April from $.55 to $.61 per share. Travelers has also increased its dividend for 11 years in a row.

Source: www.schwab.com

Travelers Companies Valuation

S&P Capital IQ ranks TRV as a buy and 4-stars with a 12-month target price of $118. The S&P fair valuation of TRV is $147.40. Morningstar ranks TRV as a hold, 3 stars with a fair value of $108. Argus ranks TRV a buy with a target price of $120. Travelers trades at a P/E Ratio of 9.59 which is below its Fast Graphs 5-year normalized P/E Ratio of 12.3 and its 13-year normalized P/E of 10.2. If you are unfamiliar with Fast Graphs, when the black line is below the blue line a stock is considered undervalued.

Source: www.fastgraphs.com

Using my dividend toolkit I used the dividend discount model analysis with the following metrics: 12% Discount Rate and an 8% Dividend Growth Rate. I get a fair value of $131.76. All of the sources I have quoted assign TRV a fair value higher then $100 dollars. I believe TRV is undervalued and I am satisfied with my purchase of 30 shares at $98.93 per share.

Profitability

• Net Profit Margin, 12.82%
• Cash Flow Margin, 16.77%
• Cash Flow Per Share (TTM), $12.93
• Book Value/Share (MRQ), $77.96
• Enterprise Value, $37.57B

Financial Strength

• Long-Term Debt, $5.85B
• Long-Term Debt to Capital, 18.75
• Total Debt to Capital, 20.35
• Long-term Debt to Equity (MRQ), 23.54%

Risks To Travelers Companies

All investing comes with risk. Insurance companies have unique risks because of uncontrollable events such as earthquakes, hurricanes, etc. I see this unknown as the biggest risk to the Travelers Companies. However, there is safety in assets. Insurance companies collect our premiums and invest them for a profit. These profits help to offset loses when acts of God occur. Additionally, Travelers is not alone, this risk applies to all insurance companies. So this is the cost of doing business in the insurance industry. Another risk is a strong U.S. Dollar. Travelers is an international company but the majority of company revenues come from the U.S. so currency exchange should not have a big effect on revenues. Competition is another risk. Insurance is a lucrative industry and there are a handful of quality companies trying to capture market share. My hope is that Travelers well-regarded management team maintains a competitive market share advantage.

Conclusion

I am a big fan of the insurance industry. Unlike banks who hold your money and invest it with minimal upside to you, insurance companies take your money and provide you with a necessary service. Travelers Companies hits all of the right buttons for me to willingly invest my money into the company. I like the extremely low dividend payout ratio of 21.35%, the 5-year dividend growth average of 11.8%, and the Dividend Coverage Ratio of 468.34. I'm not the only dividend investor who thinks TRV is a good investment. Below are links to a few TRV stock buy posts from dividend blogging community:

Captain Dividend

Dividend Vet

Dividend Mantra

What do you think of the Travelers Companies? Do buy or own stocks in the Insurance Industry?