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Dividend Investing Stocks (Archived)

THG - Hanover Insurance Group, Inc.

Dividend investing is a popular strategy with investors seeking an income stream. Dividend investors can be placed into two broad categories.

  1. The growth approach - buy dividend paying stocks with emphasis on the company's ability to grow and increase its future dividend payments (to maximize the future yield).
  2. The yield approach - buy dividend paying stocks at cheap prices (to maximize the current yield).

Dividend investors using the growth approach tend to look for the same basic growth characteristics as found with growth investing, but the stock must also pay a reasonably reliable dividend.

Dividend investors using the yield approach tend to be more concerned with the stock price and the companies ability and willingness to pay a regular dividend rather than its ability to expand.

Sometimes a company will satisfy the requirements for both approaches.

In the April 2015 issue a fundamental analysis is conducted on a selected sample of stocks. The analysis is based on fundamental data from one year ago. This allows financial students and investors to see how the stock price performed over the next 12 months after the hypothetical purchase.

Hanover Insurance Group, Inc.

Hanover Insurance Group, Inc. NYSE:THG is a mid-cap property and casualty insurance company and its stock trades around $14 million per day. THG is a mature company that was founded in 1852 and has a long established history of paying dividends.

The key fundamentals for THG are shown below.

Growth fundamentals for THG

YearIncomeEPS ROEDividendBook ValueEmployees
200431102.36 5%0.0044.004300
20052620-4.66 -13%0.2536.304100
200626403.34 9%0.3039.104000
200727804.70 11%0.4044.403900
200826802.06 6%0.4537.104000
200928304.15 8%0.7549.704100
201031503.45 6%1.0054.804400
201139300.85 1%1.1356.305100
201245901.25 2%1.2358.605100
201347905.70 10%1.3659.105100

The fundamental data above shows that THG has broadly increased its revenue, earnings, dividends and book value over the last decade. These are the characteristics of an expanding company which indicates that THG is a growth stock that pays a regular dividend. The annual dividends have increased for every year over the last decade.

Fundamental Analysis for THG:

The return on equity is a bit low and is generally under 10%. The profit margin (profit to revenue ratio) is quite low and averages around 5%.

The debt-asset ratio (total liabilities to tangible assets) is around 80% which means that THG carries a fair amount of long-term debt. Intangible assets and goodwill are not included in the ratio calculation. The tangible assets are used for the ratio calculation because these are hard physical assets that can be sold off in the event of bankruptcy liquidation whereas intangibles and goodwill cannot be sold.

The revenue for the 2014 fiscal year is projected to grow at 9% (based on the five year revenue growth trend). The earnings growth for the 2013 fiscal year is projected to grow at 4% (based on the five year earnings growth trend).

The forward PE ratio is around 18 (calculated from the five year earnings growth trend rather than from forecast earnings). The forward PEG is around 6.4.

THGs book value is around $59 and the current business valuation is around $40 (with a 2.7% ten year Treasury bond yield). This means that THGs earnings based on its assets is worth more than its ability to growth its earnings. This is not unusual for a mature dividend paying company.

The sample analysis uses data that is one year old. The hypothetical purchase date for the stock is 19-Mar-2014 and this allows the reader to see how the stock performed over the next year.

Overall the fundamentals are good with this large-cap dividend paying stock but it is struggling with its earnings growth. Additional information such as consensus forecast earnings, broker recommendations and insider transactions are not considered for this sample analysis. A hypothetical position taken in THG on the 19-Mar-2014 would give a purchase price of around $60.

The stock price performance is shown below in Chart 1. along with the annual earnings year to year growth. The stock chart is adjusted for splits and dividends.

Chart 1. Stock chart with earnings for THG

weekly Chart THG

As shown in Chart 1. above, THGs gained around 20% over the next year including dividends. THGs 2014 annual earnings increased by 12% over the 2013 fiscal year and its 2014 dividends were $1.52 which is an increase of 12% over the 2013 annual dividend.

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