Three Unloved Dividend-Paying Stocks

1. Universal Insurance Holdings(UVE) is a Florida-focused home insurer.

Writing policies in the Sunshine State is a risky endeavor, with hurricane season presenting unique geographic risks. Still, the company has proven its underwriting aptitude, helped by its small stature and regional expertise. Of the 145 insurance stocks evaluated by TheStreet.com's quantitative equity model, only 45 are rated "buy." Universal Insurance Holdings sits near the top of the list, but that doesn't mean it's risk-free.

Third-quarter net income soared 56% to $12 million, and earnings per share jumped 47% to 28 cents. Revenue grew 16% to $55 million. The company's net margin widened from 16% to 21%. Its balance sheet appears well-managed, with $275 million of cash and $45 million in debt. But our insurance model, which takes a more holistic view of the business, gives the company a financial-strength grade of E-plus, implying the quality of assets is low and potential risk is great.

Still, management raised the year-end dividend to 20 cents, giving the stock an eye-catching 14% yield, assuming dividend retention. Its payout ratio is excessive at 120%. Universal Insurance sells at a price-to-earnings ratio of 5.9 and a price-to-cash flow ratio of 3.8. But the shares are expensive relative to insurance peers when considering book value, a metric often used to determine the cost of insurance stocks. A beta of 3.8 and volatility score of 3.5 reflect extreme price swings. Income-oriented investors who can stomach volatility should take a closer look.

-- Reported by Jake Lynch in Boston, and L.A. Little in Colorado, who provided the charts.

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