To share more profit with its shareholders, the board of directors of Montpelier Re Holdings Ltd. (MRH) approved a 9.5% increase in its quarterly dividend. Montpelier will now pay a quarterly dividend of 11.5 cents per share, up from 10.5 cents paid on October 15, 2012. The increased dividend will be paid on January 15, 2013 to shareholders of record as of December 31, 2012.
The recent hike marks the fourth consecutive year of dividend increase. The last dividend hike was approved in November 18, 2011, bolstering 5% to 10.5 cent from 10 cents. It is likely that a 450 basis points increase in approval percentage spurred the share price. The share price of Montpelier increased 1.3% to close at $20.76 as on Monday.
Also, Montpelier has had a consistent track record of paying quarterly dividends and the current dividend is not an exception. Based on the closing share price of $20.76 on November 19, the increased dividend implies a dividend yield of 2.2%. Its dividend yield is also better than of its competitors, Flagstone Reinsurance Holdings SA (FSR), with a yield of 1.88% and RenaissanceRe Holdings Ltd. (RNR), with a yield of 1.35%.
Over the last 7 days, there was no earnings momentum. We believe the decision to share more profits with shareholders might encourage analysts to pull their estimates upward, which in turn will provide an upward directional pressure on its Zacks Rank. Montpelier currently holds a Zacks #3 Rank, translating into a short-term Hold rating.
The Zacks Consensus Estimates for fourth-quarter and full year 2012 are 31 cents per share and $2.83 per share, respectively. These represent a year-over-year increase of 215.7% and 213.1%, respectively.
Based on 57.3 million shares outstanding as of September 30, 2012, the company requires $6.6 million for the payment of the quarterly dividend. Meanwhile, Montpelier generated cash flow from operations of $178.7 million in the first nine months of 2012, which is more than adequate to cover the dividend payment. Also, its cash and cash equivalents at third quarter end increased 21.7% over 2011 end level. These sturdy financials well support the company’s dividend hike.
Concurrently, the board announced a quarterly dividend of 55.4688 cents per 8.875% Non-Cumulative Preferred Share, Series A to shareholders of record as of December 31, 2012. This dividend will also be paid on January 15, 2013.
Montpelier is well positioned to deliver robust numbers going forward, given its increased exposure in the property catastrophe lines of business. Also, focusing on underwriting operations, augmenting capital flexibility, and strengthening its competitive position augur well going forward. Moreover, the $300 million senior debt refinancing supports enhanced capital flexibility. It also scores strongly with the rating agencies. The company also benefits from tax exemptions in Bermuda, as no income taxes are levied there. We have a long term Neutral recommendation on Montpelier.
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