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I don't think that it's a stretch to argue that
Progressive (PGR - Get Report) is due for a dividend decrease. For Progressive, dividends aren't set arbitrarily by management; instead, they're calculated based on the firm's financial performance. It's a good approach because it ensures that shareholders (and management) get compensated in kind with the firm's performance.
But income dropped 29% in the first quarter and another 52% in the second quarter, so a cut to the firm's payout looks likely, even if the third quarter is showing early improvement.
Progressive is one of the four biggest auto insurers in the country, with more than 12 million policies and 35,000 independent agents in its network. Progressive is one of the best risk managers in the insurance industry, embracing new technologies like the firm's Snapshot chips, which drivers can opt to plug into their cars' computers to record driving patterns and determine better risk-adjusted rates. But as the insurance industry becomes more and more commoditized, the firm with the best price wins. And PGR can't compete with mutuals like State Farm and Liberty Mutual who don't care about profitability.
While Progressive should be lauded for its strong management, its risk aversion, and its scale, 2012's financial performance simply hasn't justified a bigger annual dividend at the end of the year. That's why a cut to PGR's 40.72-cent annual payout looks likely. Currently, Progressive yields around 2%.
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