Unum: Although Life and Health Insurance Companies Are Cheap This One May Be the Cheapest
If your investing philosophy is anything like mine, then you are constantly on the outlook for a bargain. In today’s bifurcated market, financials in general are a very fertile market to look at for attractive undervalued stocks. Furthermore, the life and health insurance companies, appear to be the most attractive subsector under the financial sector.
I recently did a search of the life and health insurance subsector and came up with 25 names that I considered the highest quality in the overall subsector. All of them carried investment grade credit ratings of BBB+ or better – except for one. The one exception is Unum Group (UNM) which carries a one notch below investment grade credit rating from Standard & Poor’s of BBB. But perhaps most interestingly, it appears to be also the most undervalued company in the group, despite strong fundamentals.
My Top 25 Life and Health Insurers In Order Of Highest Earnings Yield To Lowest
Unum Group: Strong Fundamentals Low Valuation
Since coming out of the Great Recession, Unum Group has consistently grown earnings at approximately 6.72% per annum, and as I will illustrate later, their dividend by almost twice that rate. Yet despite these strong operating results, Mr. Market has crushed the company’s stock price. Since November 30, 2017, just short of 3 years, Unum Group’s stock price has fallen 67.3% from $56.62 to $18.54 on October 13, 2020’s close.
In contrast, the company’s dividend has increased from $0.86 a share in 2017, to $0.98 a share in 2018, to $1.09 a share in 2019, and on track to pay $1.15 for 2020. That is an average dividend growth rate of 12.3% which brings a current yield to an extremely attractive 6.15%. Moreover, today’s current yield represents a major indicator of just how undervalued this company is. Historically, the company’s dividend yield would be in the 2 ¼% to 2 ½% range when the company was undervalued. Of course, a blended P/E ratio of 3.53, implying an earnings yield 28.33%, are further indicators of just how inexpensive this company is. I will be covering this in greater detail later in the video portion, you do not want to miss it.