For many years, Prudential Financial (0.36%) was known for its prominent advertising slogan, “Get a piece of the rock.” Today, the global financial services and investment management company continues to feature the iconic Rock of Gibraltar in its logo.
I’ve recently acquired a piece of that rock myself, not by purchasing insurance or another financial product, but by investing in the company. Here’s why I’ve decided to invest heavily in this undervalued, high-yield dividend stock.
1. A Business Built to Last
No pun intended, but the primary reason I chose to invest in Prudential Financial is its stable and resilient business model. Established in 1875, the company has not only survived but also thrived for nearly a century and a half. This extensive track record gives me confidence in its adaptability to evolving market conditions.
Prudential’s origins lie in the insurance sector, where it remains a leading force. However, the company has expanded its offerings to include investment management and a variety of financial products, such as annuities.
With assets under management nearing $1.5 trillion, Prudential serves approximately 50 million customers across more than 50 countries. It also holds an AA (very strong) financial strength rating.
Prudential’s long-term growth prospects are promising, particularly in the retirement products and services sector. The company anticipates a $137 trillion opportunity in the U.S. and a $26 trillion opportunity in Japan by 2050, driven by aging populations.
Beyond Japan, Prudential sees substantial growth potential in international markets. Emerging regions, including Africa, China, Latin America, and Southeast Asia, are witnessing expanding middle and upper classes, yet insurance penetration remains low in many of these areas.
2. An Appealing Valuation
Currently, Prudential Financial’s stock is trading at just 7.8 times forward earnings, while the S&P 500’s forward earnings multiple stands at 21.4, and the financials sector average is 16.2. When I referred to Prudential stock as a bargain, I meant it.
Moreover, Prudential’s price-to-earnings-to-growth (PEG) ratio, based on five-year growth projections, is 0.49, according to LSEG. A PEG ratio below 1.0 is generally considered attractive.
While PEG ratios are typically associated with high-growth stocks, Prudential doesn’t fit that category. Nonetheless, its remarkably low PEG ratio highlights the exceptional value this stock currently offers.
3. A Generous Dividend
I’m not exaggerating when I say Prudential offers a substantial dividend yield. The company’s forward dividend yield is 4.53%. With such an enticing yield, Prudential doesn’t require significant share price appreciation to deliver strong total returns.
What impresses me even more is Prudential’s track record of increasing its dividend for 16 consecutive years. Unlike some companies that make minimal increases to maintain their streaks, Prudential has provided shareholders with meaningful dividend hikes. Since 2008, its dividend has grown at a compound annual growth rate (CAGR) of 15%, and over the past five years, it has increased by a CAGR of 7%.
Prudential should have no difficulty sustaining and growing its dividends. As per LSEG, the company’s dividend payout ratio is a healthy 65%.
It would be remiss not to mention Prudential’s “invisible dividends.” In the first half of 2024, the company returned $500 million to shareholders through stock buybacks and has an additional $500 million available under the current share repurchase authorization, which expires on December 31, 2024.
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