Tuesday, May 14, 2013

Recent Buy: PRE

May 13, 2013: Bought 27 shares of PRE at $91.80 per share.

Founded in 1993, PartnerRe Ltd. (PRE) provides reinsurance services to clients in 150 countries around the world. It provides these services through wholly owned subsidiaries, as well as through brokers and direct relationships with insurance companies. The risks PRE reinsures include agriculture, aviation, casualty, catastrophe, contamination, credit, disability, energy, engineering, health, longevity, marine, mortality, motor, pollution, property, space, and war. PRE's headquarters are in Pembroke, Bermuda.

PRE is a Dividend Contender with an 20-year streak of dividend increases. It pays dividends in March, June, September and December. At $91.80 per share, PRE has a dividend yield of 2.79%.

Fair value estimates for PRE vary from $95.10 (S&P Capital IQ) to $103.00 (MorningStar) to $201.51 (Graham Number method). The current price of $91.80 is discounted by about 12% to the median of these estimates ($103.00), as required by my stock selection criteria.

The following table provides some key statistics for PRE.
The sum of PRE's dividend yield and its 5-yr dividend growth rate is10.38%, which is below the 12% the Chowder Dividend Rule requires. 

PRE passes the following of my selection criteria:
  • Dividend Payout ratio is 16.93% (below 65%)
  • Debt to Equity ratio is 12% (below 50%)
  • 7-year weighted average dividend growth rate is 7.92% (at least 7%)
  • Forward P/E ratio is 10.95 and the trailing twelve month (TTM) P/E ratio is 6.07 (below 16%)
  • 5-yr total payback percentage is 16.76% (at least 16%)
PRE passes all but one of my selection criteria and, consequently, earns 6 stars: (*******)

Other ratings for PRE

(see Recent Buy: CVX for details on these ratings)
MorningStar Rating (*****)
The Motley Fool's CAPS Rating(*****)
Thomson Reuters StockReport+ (10/10)Positive 

Final Remarks

Its been challenging to find good stocks with a reasonable fair value discount. I've looked at COP recently, but it wasn't discounted sufficiently for me to pull the trigger. Since then, the share price has increased by 8%!

I found PRE, which was not on my watch list of possible dividend growth stocks, after a recent drop in its share price. The drop in share price was just enough to push PRE's yield over my 2.75% requirement.

I like PRE for several reasons, including international exposure and because it pays dividends in some months I'm presently not receiving dividend payments. Also, several analysts have raised their price targets on shares of PRE recently, including Zacks (to $115.00), MKM Partners (to $110.00) and Barclays Capital (to $112.00).

On March 6, 2013, the board of PRE approved a stock repurchase authorization of up to 6 million shares. Share repurchases reduce the number of publicly traded shares, which means earnings per share will increase even if profits remain the same. When a company buys back its own shares, it could be signaling or taking advantage of undervaluation. Until April 29, 2013, PRE has repurchased 1.3 million of its shares, leaving another 4.7 million shares available for repurchase under the current repurchase authorization.

27 shares of PRE represents $69.12 of expected annual dividend income. For the 2013 calendar year, this purchase adds $51.84 of expected dividend income, for a total expected dividend income of $832.91 for 2013.

I now own shares in 7 different companies in DivGro.

Full Disclosure: Long PRE

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