The first thing I ask myself is why is it so cheap. To me, it is cheap because it is a boring company in a very regulated industry. Life insurance companies are long-term businesses with little growth prospects. The following chart shows the growth in book value per share with and without dividend reinvestment.
| Period | Annualized Equity Growth | Annualized Equity Growth w/ reinvested Dividends |
|---|---|---|
| Last 5 yr | 3.4% | 5.5% |
| Last 10 yr | 3.4% | 5.7% |
| Last 14 yr | 2.7% | 4.8% |
The data shows the company also does not have ambition to grow beyond its area of competency. We all know that Berkshire Hathaway touts it's own equity growth at more than 20%, while KCLI is growing at 5.5%. But the plus side is that it trades at 55% of book. So the growth relative to market cap is 10% ( 5.5% / 55%). That's the earnings yield.
Other than the above, there is not a lot of noteworthy things about KCLI. KCLI is a small cap company with a market cap of about $400 mil. The company is run by the Bixby family. The company trades with a very little volume.
The company has a large balance sheet and so I was concerned about the consistency of its earnings during a downturn. Looking back, the company only had one losing year in the last 15 years: in 2008 it lost $1.50. This consistency makes KCLI a very defensive stock for downturns. And this is the biggest reason I am holding this stock now.
As a final note, the following table compares KCLI with some of its competitors.
| Company | Ticker | P/E | Dividend Yield % | Price / Book |
|---|---|---|---|---|
| Torchmark Corporation | TMK | 11.66 | 0.97 | 0.72 |
| Assurant Inc | AIZ | 9.09 | 1.77 | 1.41 |
| MetLife Inc | MET | 19.67 | 2.92 | 1.41 |
| American Equity Investment Life Holding Company | AEL | 14.28 | 0.95 | 1.71 |
| Citizens Inc | CIA | 81.97 | 0 | 0.83 |
| FBL Financial Group Inc | FFG | 11.99 | 1.03 | 1.21 |
| Kansas City Life Insurance | KCLI | 16.08 | 2.86 | 1.85 |
| Unum Group | UNM | 8.77 | 1.85 | 1.13 |
No comments:
Post a Comment