When the market is volatile, as it has been for several months now, investors often look for dividend stocks. Dividend stocks are typically well established and have lots of cash, which means they can withstand difficult market conditions. They also provide income, which is a plus in any environment, but specifically they provide a cushion for investors when stock prices are challenging to evaluate.
An financial powerhouse
Prudential offers a range of financial services, mostly geared toward retirement products. These include life insurance, annuities, and retirement planning accounts. It has three main segments: PGIM, its asset management group; U.S. business; and international business. It makes money from fees, net investment spread (how much money it makes from investments minus associated costs), and underwriting.
Its large business and diversified product assortment give it multiple revenue streams that help protect it from from challenges in any particular segment. That comes into play in times like now, when the market is volatile and investors are considering instruments other than equities.
As of the end of the fourth quarter, Prudential had a record $1.7 trillion in assets under is management, and it posted its sixth consecutive quarter of record asset management fees. Net income for the fourth quarter of $1.21 billion was a 48% year-over-year increase. Earnings per share came in at $3.13 versus $2.03 a year earlier.
Management has set three goals: increasing growth, becoming less market-sensitive, and becoming more nimble. This plan comes with an attached set of strategies, and in the fourth quarter, it made progress on all three of these goals.
It’s also cutting some of its less reliable businesses to save costs as well as implementing a “thoughtful” capital deployment system to better manage its capital. To that end, it paid down $1.3 billion in debt in 2021.
Prudential divested its insurance business in Korea and Taiwan, netting $1.8 billion, and it’s in the process of divesting other parts of its business in those countries for another $4 billion. However, it’s planning to make more strategic acquisitions with some of the proceeds to further its aims in its asset management and emerging markets.
A high-yielding dividend
Management is committed to the dividend, which it recently raised by 4%. It yields 4.53% at the current price. Prudential also authorized $1.5 billion of share buybacks in 2022 for its share repurchase program to enhance shareholder value. It has a target of $3 billion to $5 billion in cash and liquid assets, and it met that target in the fourth quarter, with $3.6 billion.
At the current price, Prudential shares trade for the super-low valuation of 5.9 times trailing 12-month earnings. It’s typical for insurance companies to trade for low price-to-earnings ratios, since they’re often slow-growing. Another helpful valuation metric is the price-to-book value, which is 0.69 for Prudential. That’s low even compared with other insurance companies.
Its stock has also outperformed other insurance companies, such as Metlife, Allstate, and Cigna over the past year, growing nearly 26%.
Prudential is a leader in its industry with a robust business pipeline and dependable cash generation. Its growth initiatives and cost restructuring, coupled with its high dividend yield and low valuation, make Prudential an excellent choice for dividend investors in 2022 and beyond.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.