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Commercial property-casualty insurance firm
ACE (ACE) is another name that boosted its dividend payout last week. Last Thursday, the firm announced a 4.26% increase that makes 2012 the firm's 18th consecutive year of dividend raises for shareholders. The move puts ACE's payout at a 2.6% yield.
ACE built its business on providing major corporations with insurance against catastrophic losses. Around 90% of ACE's revenues come from that commercial property-casualty insurance line, a business with high barriers to entry for the otherwise commoditized insurance industry. Because few insurers can offer the scale that ACE offers, the company is able to underwrite profitable policies with reduced competition.
But while the catastrophic insurance business can be extremely profitable when times are good, it can be treacherous when risks aren't adequately covered. That's an area where ACE has left much to be desired lately. Not only did the firm carry a riskier investment portfolio during the recession, but it's also dealing with more insurance losses than its models counted on in the last few years.
A stabilizing insurance market should bode well for ACE in the coming years and months, but for now the firm's increased dividend doesn't justify exposure to this name.
ACE, one of
Citadel Advisors' holdings, shows up on lists of
5 Insurance Stocks for 2012 and
JPMorgan's 24 Stocks That Are More Attractive Than Apple.