“The predictability of earnings and the chance to buy in at discounted prices after big claims make insurance stocks great targets. Here’s another one with lean valuations and a good yield. Based just south of Harrisburg in Marietta, Pa., Donegal Group, Inc. (DGICA 13.75 Nasdaq - yield 3.70%), through its subsidiaries, offers property and casualty insurance to businesses and individuals, mostly in the Mid-Atlantic, Midwest, New England and South. Lines include homeowner’s, automobile and liability coverage. Last October’s Superstorm Sandy made an impact on earnings but it was not a crushing blow since it was an isolated catastrophe. Revenue this year is expected to climb 7.6% to $554 million, with earnings jumping 30% to $0.95 per share. Founded in 1986, Donegal Group has paid dividends every quarter and has never cut the payout. The current quarterly payout of $0.128 comes out to $0.51 on an annual basis, good for a 3.56% yield. Current valuations as multiples of sales, earnings and book value relative to historical ratios suggest big value in Donegal. The average price-sales multiple over the past five years is 0.91, compared to the present multiple of 0.70. Multiplying sales of $20.11 over the past twelve months times that 0.91 P/S multiple yields a stock price of $18.30 per share.”
John Dobosz, Forbes Dividend Investor, www.newsletters.forbes.com, 212-367-3388, 7/17/13