If you want reliable dividends, you should look for companies that are great at what they do and have been proving it for a long time. The financial sector is an excellent place for companies like this. Money and how it flows between people and businesses is a multitrillion-dollar pillar of the economy and one of humankind's oldest trades.
At the financial sector's core are industries like payments and insurance. Companies like Chubb(NYSE: CB), Mastercard(NYSE: MA), and Aflac(NYSE: AFL) have thrived for decades, which coincides with their impressive dividend track records.
What makes these companies so good, and why should long-term dividend investors consider buying and keeping them forever?
1. A global powerhouse in P&C insurance
P&C stands for property and casualty insurance, a broad category that includes insurance against financial losses to one's property or the financial losses to others for which one is liable. Examples of P&C insurance include home, auto, and renters insurance.
Chubb is the world's largest publicly traded P&C insurance company. It underwrites and sells insurance to individuals and businesses worldwide, including 54 countries and territories.
Insurance is simple: People and businesses pay premiums to insurance companies for whatever protection they need. The insurance company pools all its premiums together (called a float), which it invests to generate income and draws from to pay claims as required. An insurance company is profitable when its premiums are more than enough to cover its claims obligations and the company's operating expenses.
For example, Chubb's combined ratio has averaged 89.9% over the past decade versus an average of 97.5% for its peers (a lower ratio is better). In other words, Chubb's efficient underwriting makes it more profitable than its competition.
This expertise has helped Chubb grow and share more profits with investors. The company has paid and raised its dividend for 31 consecutive years -- even through disasters, recessions, and the pandemic. Although the yield at 1.2% is in line with the S&P 500 average, the company's stellar A+ credit rating should give investors plenty of peace of mind.
Chubb's track record and clean financial health eventually caught Warren Buffett's eye, whose holding company, Berkshire Hathaway, began investing in Chubb last year.
2. A dividend growth payments juggernaut
Mastercard is among the few companies that dominate the debit- and credit-card payment business. Its network acts like a toll booth, charging a fee each time someone uses their Mastercard-branded card to make a payment.
While archrival Visa is the industry leader to the point that it recently attracted antitrust scrutiny, Mastercard has done well as runner-up. The company has generated market-beating returns since the stock went public in 2006.
The company is growing faster than it needs to invest in the business, so the cash profits continue to pile up. During the past four quarters, Mastercard generated $11 billion in free cash flow (what's left of cash flow after capital expenditures) on $26.4 billion in revenue. That cash goes to share repurchases and dividends.
Although the dividend yield at 0.5% is low, Mastercard has raised its payout for 13 consecutive years, including an average growth rate of 18% during the past five years. That level of dividend growth will snowball your dividend income over time.
Since Mastercard continues to grow rapidly, the dividend is only 18% of the company's estimated 2024 earnings. Analysts believe Mastercard's earnings will grow by an average of 15% annually for at least the next three to five years. Thanks to its robust growth and tiny dividend payout ratio, Mastercard should continue hiking its dividend at a double-digit growth rate for a long time.
3. This insurance company is a future Dividend King
Aflac sells cancer and medical insurance in Japan and is a leading provider of supplemental insurance in the U.S. Supplemental insurance protects against financial loss not covered by a primary insurance plan. Aflac sells supplemental insurance for accidents, healthcare, dental, disability, and more.
The company measures its profitability by its return on equity, averaging almost 16% and never falling to less than 10% during the past decade. That's a high return that has helped Aflac compound over the years.
As with Chubb, investors can lean on Aflac's dividend growth record as a reflection of the company's ability to consistently operate at a high level and navigate adversity when it arises. Aflac has paid and raised its dividend for 41 consecutive years. Do you want a vote of confidence from management? Aflac's most recent raise was a 19% increase, giving the stock a 1.8% yield.
Looking long term, Aflac is poised to continue paying and raising its dividend. Not only is the company run well, but there is room for expansion. The supplemental insurance market is growing at a mid-single-digit percentage rate in the U.S.
Aflac should remain a fixture in Japan, whose aging population may continue turning to Aflac to cover costs that the country's healthcare system won't. Plus, the dividend itself has tons of breathing room.
Aflac currently spends about 30% of the capital it returns to shareholders on the dividend, with the rest going to share repurchases. The company seems like a lock to become a Dividend King eventually.
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Justin Pope has positions in Visa. The Motley Fool has positions in and recommends Berkshire Hathaway, Mastercard, and Visa. The Motley Fool recommends Aflac and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
