For conservative investors that have a long-time horizon and have learned to practice patience, have I got a stock for you.
Cincinnati Financial (Nasdaq: CINF) is one of those companies you hear little about on Wall Street, and I think that is a shame.
During the last 10-year period (1990-2000), patient CINF investors received an average annual return of 19.2 percent a year. Better yet, while some stocks have been hammered in the last 16 months, CINF is up about 20 percent during this time.
Cincinnati Financial writes mostly what is called “Main-Street” property and casualty insurance. They have one of the best track records around, and are very pristine in their business habits.
This has allowed Cincinnati Financial to build up a reserve base that is twice what is required by the insurance regulators. This means that CINF could easily write twice the amount of premium they do every year. But, CINF wisely passes on unprofitable business and is often cited as one of the best at paying claims promptly, an important part of the process.
The investment side of the portfolio is what I think makes Cincinnati Financial special, and it is where you will find Jim Miller, the chief investment officer of CINF. In my opinion Mr. Miller is one of the best unknown money managers in America.
Unlike many of its competitors, Cincinnati Financial manages all its investment funds in house, with impressive results.
In the 1970s, Cincinnati Financial started buying stock in Fifth Third Bank (Nasdaq: FITB). Any close inspection will show that of the top 25 largest banks in America, the best run is FITB. No foreign loans, no syndicate loans; these guys keep their noses clean and specialize in recurring income fees, the most lucrative part of banking.
Twenty-five years later Cincinnati Financial owns about 15 percent of Fifth Third stock (72 million shares). Recently, FITB was trading hands in the $60-62 area, which comes to about $4.3 billion! Cincinnati Financial’s average price paid is $4 a share. So during the last two decades the stock has risen about 1,500 percent! A $288 million dollar investment is now worth $4.3 billion for CINF! That is how you make money in the stock market. Buy quality, and take a snooze!
Even more impressive is the fact that on CINF’s 72 million shares, it receives an $0.83 dividend every year. That comes to about $60 million annually (a 20 percent return on its original investment every year … from the dividend).
This means that in the next 5 years CINF will receive more in dividends … than they paid for FITB stock! That is what they call on Easy Street, and an enviable position.
Now, the funny thing to us is that the Wall Street pundits don’t cotton to CINF because they think they have too much money tied up in the stock market. I hear many an analyst suggest CINF should sell their FITB position.
That is a ridiculous statement. Imagine going to a farmer and suggesting he sell his most fertile acreage! Why would a farmer want to do that? And for that matter, why would CINF want to sell something that has been so good to them? Sounds stupid to me!
Over the last 10-year period FITB has returned an average of 35 percent a year – and things still look very good from my end.
Mr. Miller, who operates somewhat in the fashion of Warren Buffett, believes that good stocks will always beat bonds over a long period of time. Anyone looking at the last 25 years at CINF should be convinced he knows what he is talking about.
Here are some other long-held CINF stock positions – Alltel (NYSE: AT), Exxon (NYSE: XOM), American Home Products (NYSE: AHP), PNC Financial (NYSE: PNC), Johnson & Johnson (NYSE: JNJ), Merck (NYSE: MRK) and National City (NYSE: NCC).
This is the ideal stock for widows, orphans and investors looking for stocks to buy and hold over a long period of time. Buy it – fuhgettaboutit.
No, Cincinnati Financial will not double in a year, but if you buy it and put it away, I believe in 15 or 20 years it will make you very happy.
The current CEO, John Schiff, Jr., is the son of the founder, and he and his family control about 20 percent of CINF.
CINF is still very much a mid-western company with more than 60 percent of the insurance premium written coming from three states: Indiana, Ohio, and Illinois.
CINF does not grow by acquisition, rather they move into new states by making agreements with the better independent agents in that state.
Because of Cincinnati Financial’s low-cost structure, they have a big advantage over the competition. CINF has about 1,000 agents writing business, and they are top-end.
The average CINF agent writes three times the business of the industry norm. Another unique thing about CINF is that most of their agents own stock in the company.
Below the $42 area I find this stock very attractive for those looking to fill their portfolio with high-quality, one-decision stocks.
