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Berkshire Hathaway (BRK-B) has an equity investment portfolio worth over $360 billion, as of the end of the 2022 first quarter.

Berkshire Hathaway’s portfolio is filled with quality stocks. You can follow Warren Buffett stocks to find picks for your portfolio. That’s because Buffett (and other institutional investors) are required to periodically show their holdings in a 13F Filing.

Note: 13F filing performance is different than fund performance. See how we calculate 13F filing performance here.

As of March 31st, 2022, Buffett’s Berkshire Hathaway owned about 6.4 million shares of Globe Life Inc. (GL) for a market value of $639 million. Globe Life represents about 0.2% of Berkshire Hathaway’s investment portfolio. This marks it as the 32nd largest position in the portfolio, out of 49 stocks.

This article will analyze the life insurance company in greater detail.

Business Overview

Globe Life is an insurance holding company providing primarily life and supplemental health insurance via direct-to-consumer, exclusive agents, and independent agents. Founded in 1979, this $10 billion market cap company has raised its dividend every year for the past 16 years.

Globe Life reported first-quarter 2022 earnings on April 20th, 2022. Earnings-per-share were $1.64, down 3.5% year-over-year from the $1.70 reported in Q1 2021. In the quarter, the company sustained roughly $46 million of COVID life claims.

Globe Life announced a 5% dividend increase to $0.2075 quarterly, which marks its 16th consecutive annual dividend raise. The company also repurchased 880,061 shares for $89 million, at an average price of $100.70.

Year over year, premium revenue was up 7%, and given that these premiums are long term commitments, this increase should provide steady income over the next few years.

Globe Life expects that net operating income for 2022 will be in the range of $7.85 to $8.25, down from prior expectations due to an expected increase in COVID life policy obligations.

Growth Prospects

Warren Buffett is a fan of insurance companies, as they are stable, non-cyclical businesses with generally reliable revenue and income streams. These income streams allow for reinvestment into the business, or for the company to pay consistent dividends and share buybacks.

Like many other insurance companies, Globe Life has been able to continue growing its revenues and maintain strong margins over the trailing decade. As earnings-per-share have grown, so too have the company’s annual dividends.

Globe Life has generated about 8% and 9% earnings-per-share growth over the last nine and five years on average. This, in turn, has led to 8% and 6% annual dividend growth over the last nine and five years on average.

The management team is relatively shareholder-friendly, which is displayed through their regular share repurchases. Over the last nine years, the company has reduced the total share count by nearly 4% per year.

Often, companies dilute shareholders with share offerings. On the other hand, Globe Life enables shareholders to increase their ownership stake in the business by simply holding onto their existing shares.

We forecast continued performance from Globe Life and expect earnings growth of 8% annually, in-line with its historical norms.

Additionally, we estimate the dividend per share will increase at a slightly higher rate of 10%, stemming from the fact that it currently has an incredibly low payout ratio.

Competitive Advantages & Recession Performance

The company has some advantages over the competition in that it is a mature and established company in the insurance sector, which contains a significant number of regulations that new entrants may struggle to meet.

These regulations also make it challenging for any potential new entrants to meaningfully disrupt the sector. This affords Globe Life a solid moat to keep competitors at bay.

We believe the company could weather an economic storm, due to the company’s steady business, consistent revenues and earnings, and low payout ratio.

The dividend appears to be highly secure, especially considering the company has an ultra low payout ratio of around 10%. Even with a solid dividend payout growth, the company has maintained an average dividend payout ratio of below 14% over the last decade.

Valuation & Expected Returns

Shares of Globe Life have traded for a 5- and 10-year average price-to-earnings multiple of 14.0 and 13.1, respectively. Shares are now trading below both of these averages, which indicates that shares could be undervalued at the current 12.0 times earnings.

Our fair value estimate for Globe Life stock is 12.0 times earnings. If this proves correct, the stock will benefit from a 1.6% annualized gain in its returns through 2027.

Shares of Globe Life currently yield just 0.8%, which is about in line with its 5- and 10-year average yields of 0.8% and 0.9%, respectively. On a dividend yield basis, Globe Life shares seem to be trading at roughly fair value.

Putting it all together, the combination of valuation changes, EPS growth, and dividends produces total expected returns of 10.5% per year over the next five years. This makes Globe Life a buy.

Final Thoughts

Globe Life has been a solid pick in the current economic environment. While the S&P 500 index has shed 12.3% of its share price year-to-date, Globe Life has gained 1.8% to its share price in the same time.

Globe Life is a stable insurance company with consistent earnings and dividend growth. Not to mention, the payout ratio is ultra low, which means there is room for plenty more dividend increases, on top of the current sixteen year streak. Globe Life appears to be an attractive opportunity.