Linked here is a detailed quantitative analysis of RLI Corp. (RLI). Below are some highlights from the above linked analysis:
Company Description: RLI Corp, based in Peoria, IL, provides selected property, casualty and surety insurance.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
- Free Cash Flow Payout
- Debt To Total Capital
- Key Metrics
- Dividend Growth Rate
- Years of Div. Growth
- Rolling 4-yr Div. > 15%
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to > MMA
Other: RLI is a member of the Broad Dividend Achievers™ Index.
Conclusion: RLI did not earn any Stars in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks RLI as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $86.12 before RLI's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 35 years of consecutive dividend increases. At that price the stock would yield 1.23%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 10.5%. This dividend growth rate is less than the 15.0% used in this analysis, thus providing only a margin of safety. RLI has a risk rating of 1.25 which classifies it as a low risk stock.
RLI has a history of strong dividend growth. However, as we have seen over the last several years, the Financial Services sector has been quite volatile. With that in mind, I prefer a higher current yield than RLI's 2.03% at the expense of a lower dividend growth rate. Also considering the stock is trading well above my $44.52 fair value price, I will pas on any near-term purchases of RLI. For additional information, including the stock's dividend history, please refer to its data page.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in RLI (0.0% of my Income Portfolio). See a list of all my income holdings here.