NMI Holdings Stock Rises 39.5% in a Year: More Room for Growth?

Here's an eye-opening statistic: older Americans are more afraid of running out of money than of death itself.

And retirees have good reason to be worried about making their assets last. People are living longer, so that money has to cover a longer period. Making matters worse, income generated using tried-and-true retirement planning approaches may not cover expenses these days. That means seniors must dip into principal to meet living expenses.

Retirement investing approaches of the past don't work today.

For example, 10-year Treasury bonds in the late 1990s offered a yield of around 6.50%, which translated to an income source you could count on. However, today's yield is much lower and probably not a viable return option to fund typical retirements.

The effect of this drop in rates is substantial: over 20 years, the change in yield for a $1 million investment in 10-year Treasuries is over $1 million.

In addition to the considerable drop in bond yields, today's retirees are nervous about their future Social Security benefits. Because of certain demographic factors, it's been estimated that the funds that pay the Social Security benefits will run out of money in 2035.

So what's a retiree to do? You could cut your expenses to the bone, and take the risk that your Social Security checks don't shrink. Or you could find an alternative investment that provides a steady, higher-rate income stream to replace dwindling bond yields.

Invest in Dividend Stocks

We feel that these dividend-paying equities - as long as they are from high-quality, low-risk issuers - can give retirement investors a smart option to replace low-yielding Treasury bonds (or other bonds).

Look for stocks that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.

A rule of thumb for finding solid income-producing stocks is to seek those that average 3% dividend yield, and positive yearly dividend growth. These stocks can help combat inflation by boosting dividends over time.

Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.

Amgen (AMGN)

is currently shelling out a dividend of $2.25 per share, with a dividend yield of 3.23%. This compares to the Medical - Biomedical and Genetics industry's yield of 0% and the S&P 500's yield of 1.5%. The company's annualized dividend growth in the past year was 5.63%. Check Amgen dividend history here>>>

First American Financial (FAF)

is paying out a dividend of $0.54 per share at the moment, with a dividend yield of 3.3% compared to the Insurance - Property and Casualty industry's yield of 0.13% and the S&P 500's yield. The annualized dividend growth of the company was 1.89% over the past year. Check First American Financial dividend history here>>>

Currently paying a dividend of $0.5 per share,

Portland General Electric (POR)

has a dividend yield of 4.28%. This is compared to the Utility - Electric Power industry's yield of 3.3% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 5.26%. Check Portland General Electric dividend history here>>>

But aren't stocks generally more risky than bonds?

The fact is that stocks, as an asset class, carry more risk than bonds. To counterbalance this, invest in superior quality dividend stocks that not only can grow over time but more significantly, can also decrease your overall portfolio volatility with respect to the broader stock market.

An upside to adding dividend stocks to your retirement portfolio: they can help lessen the effects of inflation, since many dividend-paying companies (especially blue chip stocks) generally increase their dividends over time.

Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.

If you're interested in investing in dividends, but are thinking about mutual funds or ETFs rather than stocks, beware of fees. Mutual funds and specialized ETFs may carry high fees, which could lower the overall gains you earn from dividends, undercutting your dividend income strategy. Be sure to look for funds with low fees if you decide on this approach.

Bottom Line

Regardless of whether you select high-quality, low-fee funds or stocks, looking for a steady stream of income from dividend-paying equities can potentially lead you to a solid and more peaceful retirement.

Zacks Investment Research

Palomar Holdings, Inc. PLMR shares have rallied 86.8% year to date (YTD) compared with the industry's growth of 31.5%. The Finance sector and the Zacks S&P 500 composite have returned 21.3% and 23.4%, respectively, YTD. With a market capitalization of $2.74 billion, the average volume of shares traded in the last three months was 0.15 million.

PLMR Outperforms Industry, Sector, S&P YTD

Shares of PLMR closed at $103.69 on Friday, near its 52-week high of $107.00. This proximity underscores investor confidence. It has the ingredients for further price appreciation.

This property and casualty insurer has a solid track record of beating earnings estimates in each of the last four quarters, the average being 14.90%.

New business, strong premium retention rates for existing business and renewals of existing policies, better pricing and effective capital deployment are driving shares higher.

PLMR Trading Above 50-Day and 200-Day Moving Average

This Zacks Rank #3 (Hold) property and casualty insurer is trading above its 50-day and 200-day simple moving average (SMA) of $95.77 and $85.82, respectively, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.

Palomar Holdings’ Growth Projection Encourages

The Zacks Consensus Estimate for Palomar Holdings’ 2024 earnings per share indicates a year-over-year increase of 29.8%. The consensus estimate for revenues is pegged at $537.83 million, implying a year-over-year improvement of 44.2%.

The consensus estimate for 2025 earnings per share and revenues indicates a year-over-year increase of 23.1% and 26.8%, respectively, from the corresponding 2024 estimates.

PLMR has an impressive Growth Score of A. This style score helps analyze the growth prospects of a company.

PLMR’s Return on Capital

Return on equity (ROE) is a measure of profitability reflecting how efficiently the company is utilizing its shareholders’ value. ROE was 20.8% in the first half of 2024, which compared favorably with the industry’s average of 7.5% and expanded 370 basis points year over year. Annualized adjusted return on equity was 20.9% in the first nine months of 2024. Also, return on invested capital in the trailing 12 months was 18.5%, better than the industry average of 5.7%, reflecting the company’s efficiency in utilizing funds to generate income.

Factors Acting in Favor of PLMR

Premiums, the principal component of an insurer’s top line, should continue to benefit from the increased volume of policies written across the lines of business. New business generated, strong retention rates, strategic expansion of products’ geographic and distribution footprint and new partnerships should help in retaining the momentum.

High-quality fixed-income securities, a higher average balance of investments, and an increase in fixed-income yields favor improvement in net investment income, which witnessed a five-year CAGR (2018-2023) of 49%.

Palomar Holdings’ fee-generating PLMR-FRONT should fuel growth in the medium term. The addition of the fee-based revenue stream to the business is expected to strengthen its earnings base.

The company’s prudent underwriting expertise is reflected in its combined ratio, which has been under 95% since 2017, except in 2020. PLMR’s risk transfer strategy lowers exposure to major events, which, in turn, reduces earnings volatility.

Palomar Holdings has a debt-free balance sheet. Continued operational excellence also helps it maintain a strong capital position. PLMR expects to generate adjusted net income between $124 million and $128 million in 2024. This range includes catastrophe losses incurred during the fourth quarter of 2024 of nearly $8 million related to Hurricane Milton.

The Zacks Consensus Estimate for Palomar Holdings’ 2025 earnings has moved 0.6% north, respectively, in the past 30 days, reflecting analyst optimism.

Key Picks

Investors interested in the property and casualty insurance industry may look at some better-ranked players like First American Financial Corporation FAF, Mercury General Corporation MCY and The Travelers Companies, Inc. TRV. While First American and Mercury General sport a Zacks Rank #1 (Strong Buy) each, The Travelers carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for First American’s 2024 and 2025 earnings indicates 5% and 32.1% year-over-year growth, respectively. In the year-to-date period, shares of FAF have gained 0.6%.

The Zacks Consensus Estimate for 2024 and 2025 earnings has moved 2.5% and 4.3% north, respectively, in the past 30 days.

Mercury General's bottom line outpaced estimates in each of the trailing four quarters, the average surprise being 694.28%. In the year-to-date period, shares of MCY have rallied 96.7%.

The Zacks Consensus Estimate for 2024 and 2025 earnings has moved 2,016.67% and 8.66% north, respectively, in the past 30 days.

The Travelers' bottom line outpaced estimates in three of the trailing four quarters and missed in one, the average surprise being 25.40%. In the year-to-date period, shares of TRV have gained 34.6%.

The Zacks Consensus Estimate for 2024 and 2025 earnings has moved 9.1% and 1.2% north, respectively, in the past 30 days, reflecting analysts’ optimism.

Zacks Investment Research

Shares of Heritage Insurance Holdings, Inc. HRTG have rallied 81.4% year to date, outperforming the industry’s increase of 30.7%, the Finance sector's rise of 22.5% and the Zacks S&P 500 composite’s gain of 26.3% in the same time frame.

This super-regional U.S. property and casualty insurance holding company beat estimates in three of the last four quarters and missed in one. Prudent underwriting execution and rate adequacy initiatives pursued over the last three years are expected to drive its earnings ahead.

Heritage Insurance Outperforms Industry, Sector & S&P YTD

HRTG shares are trading well above the 50-day moving average, indicating a bullish trend.

Mixed Analyst Sentiment for HRTG

The consensus estimate for 2024 and 2025 earnings has moved 14.9% and 4.4% south, respectively, in the past seven days.

The Zacks Consensus Estimate for 2024 implies a 42.9% year-over-year decrease, while the same for 2025 suggests a 118% increase.

It has a Growth Score of A.

HRTG’s Growth Strategy

HRTG’s growth strategy focuses on rate adequacy, selective profit-oriented underwriting criteria and restricting new business in over-concentrated markets or products to drive profitability. The company has stopped writing new personal lines policies in Florida and the Northeast, given the waning profitability of the book of business, coupled with tightening reinsurance markets in December 2022.

HRTG focuses on selective underwriting. There has been a decline in policy count, though average premiums per policy increased. However, HRTG expects the headwind from declining policies to begin to moderate over the next few quarters.

The excess and supply (E&S) business is another growth lever for Heritage. HRTG stated that it will consider and evaluate growth opportunities in a greater number of states.

Heritage Insurance is exposed to hurricanes and other severe weather events in the coastal area. Its reinsurance program shields the balance sheet from erosion. The insurer expects a substantial reduction in the ceded premium ratio, given a combination of improvements in the reinsurance program from a cost and structure standpoint and growing gross premiums earned.

Heritage Insurance’s strategy to divert capital toward technology and to the segments that have the potential to yield more profits seems prudent.

HRTG’s Favorable Return on Capital

Return on equity in the trailing 12 months was 29.2%, higher than the industry average of 7.5%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders.

Its return on invested capital (ROIC) has been increasing for quite some time. This reflects RGA’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 19.7%, higher than the industry average of 5.8%.

Average Target Price for HRTG Suggests a Solid Upside

Based on short-term price targets offered by two analysts, the Zacks average price target is at $16.00 per share. The average suggests a potential 35.3% upside from Tuesday’s closing price.

HRTG Shares Are Affordable

The stock is undervalued compared to its industry. It is currently trading at a price-to-book multiple of 1.42, lower than the industry average of 1.50. It also has a Value Score of A. Back-tested results have shown that stocks with a solid Value Score and a favorable Zacks Rank are the most attractive and their returns are better.

Shares of other insurers like NMI Holdings NMIH, MGIC Investment Corporation MTG and Radian Group RDN are also trading at a multiple lower than the industry average.

Conclusion

A growing commercial residential business, improving E&S business, better pricing, increasing top line, expanding margins and solid earnings bode well for HRTG’s growth. It also carries a VGM Score of A.

However, given muted analyst sentiment it is better to stay cautious on this Zacks Rank #3 (Hold) stock. Those who own it can retain it in their portfolio. New investors should wait for some time before taking a position in the stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research