Dividend Growth Stock Overview: RLI Corp.

Photo courtesy Alan Cleaver/flickr.com.

About RLI Corp.

RLI Corp. underwrites a variety of insurance products in all 50 states, the District of Columbia and United States territories. The company’s operations are organized vertically underneath RLI Corp.; RLI Insurance Company is the first-level subsidiary. Mt. Hawley Insurance Company and Contractors Bonding and Insurance Company are subsidiaries of RLI Insurance, and RLI Indemnity Company is a subsidiary of Mt. Hawley Insurance. Altogether, these companies are known as the RLI Insurance Group.

RLI Corp. organizes its operations into three business segments: Casualty, Property and Surety. The Casualty segment covers a variety of policies including commercial and personal umbrella; general liability for manufacturers, contractors and REITs; commercial transportation; professional services; liability for executive directors and officers, and medical professionals; and property and casualty insurance for small-to-medium sized retail businesses.

The Property business segment covers policies for commercial properties and ships and ships’ cargo liability and loss, and losses on RVs and high-valued homes in the Cape Cod, Massachusetts region. This segment also includes RLI’s business in the U. S. Agricultural Department’s crop insurance program and RLI’s property reinsurance business.

Lastly, RLI’s Surety business segment provides surety bonds for businesses and individuals, for contractors and individual construction contracts, and for the energy, petrochemical and refining industries.

The company’s business is geographically distributed throughout the United States and its territories, with more than 40% of total premiums coming from California (16.3% of total premiums), New York (14.5%) and Florida (10.2%).

In 2014, RLI wrote $863.8 million in premiums across all of its business segments. This figure was up 2.4% year-over-year. The company had earnings of $135.4 million in 2014 on revenues of $775.2 million. These figures were up 7.3% and 9.9%, respectively, from 2013. The company earnings per share on operations were up 6.6% to $3.09, which gives RLI a current payout ratio of 23% (excluding the special dividend that was issued at the end of 2014). Investment income in 2014 was $55.6 million, up 5.4%.

After accounting for losses and settlement expenses, and all operating expenses, RLI made 15.5 cents on each dollar of premiums earned. The corresponding figures for 2012 and 2013 were 11.0 cents and 16.9 cents, respectively.

RLI’s financial performance in 2014 was driven by growth in the casualty segment and a reduction of reinsurance rates, due to a lack of significant natural disasters. The company normally reduces its risks by reinsuring portions of its portfolio and in 2014 reinsured 18.6% of its portfolio as expressed as a percentage of the total premiums collected.

The company is a member of the S&P Small Cap 600 and Russell 2000 Small Cap indices and trades under the ticker symbol RLI.

RLI Corp.’s Dividend and Stock Split History

RLI Corp Dividend Growth

Despite a 25-year record of 10% annual dividend growth, RLI has grown its dividend by only 5.5% since 2010.

RLI Corp. has increased dividends since 1976. Since 2009, RLI has increased its dividend in the 2nd quarter of the calendar year, announcing the increase at the beginning of May, with the stock going ex-dividend at the end of the month. In May 2015, RLI announced a 5.6% dividend increase to an annualized rate of 76 cents per share. I expect that RLI will announce its 41st annual dividend increase in May 2016.

Since increasing dividends by double-digits from 2003 – 2008 (when the company increased dividends twice a year), RLI has slowed its dividend growth rate. The company has increased its quarterly dividend by no more than a penny a share since 2010, resulting in annual dividend growth in the low to mid-single digits. RLI’s compounded annual dividend growth rate (CADGR) since 2010 has been 5.5%, much lower than the 25-year CADGR of 10.1%. The company’s 10 and 20-year CADGRs are 9.1% and 10.5%, respectively.

In addition to the regular quarterly dividends, RLI has also paid a special dividend in the 4th quarter since 2010. These special dividends have been significant, ranging from $1.50 in 2013 to $3.50 in 2010. In 2014, RLI paid a special dividend of $3.00.

In the last 20 years, RLI has split its stock 4 times, most recently 2-for-1 in January 2014. RLI also split its stock in June 1995 (5-for-4), June 1998 (5-for-4), and October 2002 (2-for-1). For each share of RLI stock you purchased prior to June 1995, you would now have 6.25 shares.

Over the 5 years ending on December 31, 2014, RLI Corporation stock appreciated at an annualized rate of 23.68%, from a split-adjusted $16.94 to $49.03. This dramatically outperformed the 13.0% annualized return of the S&P 500 index, the 15.9% annualized return of the S&P Small Cap 600 index, and the 14.0% compounded return of the Russell 2000 Small Cap index over the same period.

RLI Corp.’s Direct Purchase and Dividend Reinvestment Plans

RLI Corp. has both direct purchase and dividend reinvestment plans. You must already be an investor in RLI to participate in the plans. The minimum amount for the direct purchase plan is $25. The dividend reinvestment plan does not allow for partial reinvestment of dividends.

The plans’ fee structures are favorable for investors, with the company picking up all costs on stock purchases. When you sell your shares, you’ll pay a sales commission of between $15 and $30, depending on the type of sell order you request. There’s an additional $5 fee to have the proceeds directly deposited to your account. All fees are deducted from the sales proceeds.

Helpful Links

RLI Corp.’s Investor Relations Website

Current quote and financial summary for RLI Corp. (finviz.com)

Information on the direct purchase and dividend reinvestment plans for RLI Corp.

 

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