I recall the old commercial about owning a piece of the rock, but I never did. One of my readers happened to suggest taking a look at Prudential Financial (PRU), so I did and was quite surprised that it had not been on my radar before now. I’m glad I did, and believe it is a stock the you might want to consider.
Here are some facts that I found for you to begin to do your research and why I consider PRU a definite buy right now.
Right Here On Seeking Alpha
It just takes a few clicks to see the data here on Seeking Alpha. These are the most compelling:
It is rare to see these fundamentals all green. From the value exponent to growth and profitability, this tells me in a nutshell what I need to know. A peek at each metric goes deeper:
Impressive, to say the least. Now let’s look at the Quant rating, as explained here.
I would remind everyone that these ratings can be found right here on SA and I feel it is important to bring these forth as you do your own research!
Finally take a look at this chart:
As a dividend growth investor for future financial security and a reliable income stream, this chart is probably the most important.
Digging Into The Recent Quarterly Earnings Report
The recent earnings report shows strength and, in my opinion, a defiant path of growth during the pandemic and amid all the issues that many insurance companies have faced.
When you have a chance, I suggest that you review the earnings report for yourself. Actually, with the earnings beat I am surprised that Wall Street analysts have a poor rating on the stock. However, I am taking that as another buy signal! When the pros hate it, it might be time to buy it – or at least to dig deeper.
Cash flow, even during difficult times, has increased quite nicely as well, which obviously is a great sign for continued dividend growth:
PRU is not a dividend aristocrat. However with an increasing cash flow, as well as a low payout ratio, I believe the company can continue its dividend growth rate close to its last five-year record of 13%. With a current yield of 6.34% it is a compelling dividend selection for sure.
But That’s Not All!
The share price has not recovered very much from its March lows, and that probably reflects the ongoing issues of just about any insurance company for the time being.
Let’s look at this chart:
While the price has recovered from about $40/share, it has room to grow as the pandemic issues recede and business gets back to a semblance of normal. I am not saying that $100/share is around the corner, but I am saying that I believe the stock is undervalued.
A strong dividend, combined with the potential of capital gains, is yet another example of how both growth and income can help a dividend growth investor’s portfolio.
As noted in this article, the international business growth is strong and as the population ages, there is a greater need for retirement advice:
Prudential boasts of a strong international footprint, which has resulted in earnings from international businesses registering a four-year CAGR of 3.3%. An aging population has led to rise in demand for enhanced retirement solutions, which has provided ample opportunities for the company to expand business in Japan. It has also been making constant efforts to foray further into the emerging markets of Latin America, China, Southeast Asia and Africa, where there is a spike in demand for protection and savings products due to lower insurance penetration.
Furthermore, Prudential Global Investment Management (PGIM), which generates robust investment performance across diverse set of asset classes, has been bolstering Prudential’s organic growth. With four-year CAGR earnings of 8.2%, PGIM certainly provides a competitive edge to the company’s U.S. and international businesses. Needless to say, the company also engages in prudent mergers and acquisitions (M&A) in a bid to boost organic growth.
While expenses are somewhat high, PRU has shown that it can continue generating enough cash (as shown above from the earnings report) to cover expenses and dividends, but expenses are a fly in the ointment for now. I believe that expenses will be addressed and debt reduced, so while it is a negative, I believe it is temporary.
Finally, as noted here, PRU appears very reliable and I consider it a buy at the current share price:
… the company has a good balance sheet. Book value, which is a measure of shareholder equity, increased in the second quarter to $165.54 per share, up from $150.40 per share a year ago. A growing book value means it has more equity to cover losses.
Prudential also has great liquidity with $4.5 billion in liquid assets, down only slightly from a year ago, when it was $4.9 billion. Adding to that, the company will receive $1.7 billion from the sale of its Prudential of Korea, which is expected to close in the second half of this year. The company is also on pace to achieve $140 million in cost savings this year. Through the second quarter it had $75 million in cost savings, with $45 million in the second quarter alone.
Ultimately, Prudential has a great dividend, and it should be safe in the near future — even through the losses — with its great liquidity.
My Bottom Line
Perhaps my own prejudices towards insurance companies made me block out even looking at PRU, but thanks to our Seeking Alpha community, I was made aware of its potential.
Now that I have laid out my bullish case, I hope to see a strong comment stream with your opinions!
Not To Bore You, But…
Knowledge is power, and many folks shy away from the investing world because that very world makes it more confusing each and every day in an effort to sell you something.
My work here will remain free to all of my followers (unless it is an Editor’s Pick! Then the article will be openly available for only 24 hours or so. But I have no Marketplace service). My hope is that I’ll give you some of the things that took years for me to learn myself.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Disclaimer: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author used in his past worked for him, and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance. One more thing…I have no equities since I divested everything about 2 years ago due to very serious health issues and my personal circumstance.