This article was coproduced with Dividend Sensei.
Insurance is a beautiful business, just ask Warren Buffett, who has used exceptional insurance businesses to generate the best long-term returns in history.
20.5% CAGR returns for 57 years
One of my first real estate investors also owned an insurance agency and that "cash cow" business allowed him to write very large checks to fund dozens of my real estate deals.
You see, insurance companies collect cash upfront, and then can prudently invest it and generate investment profits or buy other businesses while paying out on policies over time.
What's more, if done correctly, great insurance companies can earn 5% to 10% profits on their policies, and thus earn profits for investors two ways.
Of course, done poorly, with poor risk management and a lack of underwriting discipline, insurance companies can also blow up, as we saw with AIG (AIG) in the financial crisis.
Berkshire Hathaway (BRK.A) is up 7,220% since 1990
AIG is still 95% below its record highs
Today we wanted to highlight Allianz (OTCPK:ALIZY), which is the world's best insurance company.
That's not just my opinion, it's the collective opinion of the rating agencies, who consider the world's largest insurance company to be the pinnacle of safety, prudent risk management, and a great long-term investment.
So let me show you the three reasons why we recommended Allianz as a dream holding that everyone should own.
This is the template tool we created so that you can profit from market corrections, by buying the best blue chips that fit your specific goals, risk profile, and time horizon.
For example, here is our correction buy list fundamental summary. You can see that the companies' quality, risk management, yield, growth, and valuations create a wonderful combination of high-yield blue chips that analysts think can deliver Buffett-like returns.
Even adjusting for the risk of some of these companies not growing as expected, we should achieve 13% to 14% long-term returns, on par with the greatest investors in history.
So now we'll show you why Allianz is a cornerstone of my plan to achieve John Templeton-like long-term returns and retire in safety and splendor, and you might want to buy it too.
Reason One: The Best Insurance Company In The World
The Dividend King's overall quality scores are based on a 241-point model that includes:
dividend safety
balance sheet strength
credit ratings
credit default swap medium-term bankruptcy risk data
short and long-term bankruptcy risk
accounting and corporate fraud risk
profitability and business model
growth consensus estimates
management growth guidance
historical earnings growth rates
historical cash flow growth rates
historical dividend growth rates
historical sales growth rates
cost of capital
long-term risk management scores from MSCI, Morningstar, FactSet, S&P, Reuters'/Refinitiv, and Just Capital
management quality
dividend friendly corporate culture/income dependability
long-term total returns (a Ben Graham sign of quality)
analyst consensus long-term return potential
How do we know that our safety and quality model works well? And how does Allianz score on our comprehensive and accurate safety and quality models?
Allianz Dividend Safety
Rating Dividend Kings Safety Score (151 Point Safety Model) Approximate Dividend Cut Risk (Average Recession) Approximate Dividend Cut Risk In Pandemic Level Recession 1 - unsafe 0% to 20% over 4% 16+% 2- below average 21% to 40% over 2% 8% to 16% 3 - average 41% to 60% 2% 4% to 8% 4 - safe 61% to 80% 1% 2% to 4% 5- very safe 81% to 100% 0.5% 1% to 2% ALIZY 97% 0.5% 1.20% Risk Rating Low Risk (87th industry percentile consensus) AA stable outlook credit rating 0.51% 30-year bankruptcy risk 15% OR LESS Max Risk Cap Recommendation
Long-Term Dependability
Company DK Long-Term Dependability Score Interpretation Points Non-Dependable Companies 21% or below Poor Dependability 1 Low Dependability Companies 22% to 60% Below-Average Dependability 2 S&P 500/Industry Average 61% (58% to 70% range) Average Dependability 3 Above-Average 71% to 80% Very Dependable 4 Very Good 81% or higher Exceptional Dependability 5 ALIZY 100% Exceptional Dependability 5
Overall Quality
ALIZY Final Score Rating Safety 97% 5/5 very safe Business Model 60% 2/3 above-average Dependability 100% 5/5 exceptional Total 96% 12/13 Super SWAN Risk Rating 3/3 Low Risk 15% OR LESS Max Risk Cap Rec 10% Margin of Safety For A Potentially Good Buy
Allianz: 18th Highest Quality Master List Company (Out of 509) = 96th Percentile
The DK 500 Master List includes the world's highest quality companies including:
All dividend champions
All dividend aristocrats
All dividend kings
All global aristocrats (such as BTI, ENB, and NVS)
All 13/13 Ultra Swans (as close to perfect quality as exists on Wall Street)
47 of the world's best growth stocks (on its way to 100)
Allianz's 96% quality score means it's similar in quality to such blue chips as
Microsoft (MSFT)
Colgate-Palmolive (CL) - dividend king
Mastercard (MA)
V.F. Corp (VFC) - dividend king
Amazon (AMZN)
Adobe (ADBE)
Even among the most elite companies on earth, Allianz is higher quality than 96% of them.
Why?
Allianz Is The Pinnacle Of Safety And Dependability
Allianz was founded in 1890 in Munich, Germany.
It has 153,000 employees in over 70 countries.
53% life and health insurance
42% property-casualty insurance
6% asset management
16% Germany
7% Western Europe and Asia
61% of revenue from global operations
Why do the rating agencies and I love Allianz?
This company is built to last thanks to a focus on risk management above all else.
Over the last 132 years, it has survived and prospered through:
dozens of recessions
several depressions
2 World Wars
the cold war
commodity spikes
deflation and inflationary conditions
high and low-interest rates
approximately 100 bear markets and corrections over 132 years
has never missed a dividend payment since 1890
Most likely it would take a literal apocalypse to cause Allianz to miss its annual dividend payment. And in that scenario, we're all too dead to care about dividends or our portfolios.
What You Need To Know About Foreign Dividend Withholding Taxes
Allianz is a German company so US investors face 26.375% dividend withholding taxes on their shares
a tax credit recoups this if you fill out the paperwork and own them in taxable accounts
With 120 million global customers Allianz is the largest insurance company with industry-leading market share and trust
#1 market share
#1 brand
#1 financial strength according to rating agencies
#1 in dividend payouts
an industry leader in risk management (87th industry percentile)
Allianz owns shares in virtually all German companies and is a proxy for the German stock market
Allianz is a true juggernaut, with $2.5 trillion in assets under management.
and asset management is just 6% of its business
“Allianz is the major shareholder of Pacific Investment Management Company, LLC, or PIMCO, which many of you may know. PIMCO operates as a subsidiary of Allianz following a 2000 takeover. Combining PIMCO operations and AGI operations makes Allianz one of the biggest in all of the space, with representation in most nations on earth." - Sebastian Wolf (emphasis original)
Allianz is the world's most trusted bond asset manager thanks to acquiring PIMCO advisors in 2000.
in 2021 the global bond market was $124 trillion, the largest capital market in the world
ALIZY has a great track record of delivering or exceeding on its guidance.
In fact, in terms of EPS, dividend growth, and returns on equity, its 2021 results exceeded all its targets set back in 2018.
despite the pandemic
Allianz's efficiency plans are impressive, with a 99% reduction in product offerings and steady reductions in costs.
while revenue growth has accelerated to over 7% for those businesses using the new approach
In an increasingly dangerous world full of natural disasters and risk, Allianz has been boosting profitability, growth, dividends, customer satisfaction, employee satisfaction, and long-term risk management scores from rating agencies.
rating agencies consider ALIZY the world's best insurance company
#1 insurance company on the Master List in terms of quality, safety, and dependability
Allianz is well prepared to take on the many challenges to its industry, from high regulations to negative real interest rates, and to adapt and overcome business risks as it has for 132 years.
In fact, the reason rating agencies consider ALIZY the world's best insurance company is because its risk management is focused on every important risk factor and stakeholder.
And it has reasonable and prudent plans, with good execution, on overcoming challenges and driving superior growth, profitability, and returns for investors, despite everything challenging its industry.
Allianz's new businesses are growing faster than its old ones.
2% to 3% from 2015 to 2020
4% to 5% from 2020 to 2024
For example, Allianz Life is being transformed into an asset manager.
resulting in returns on equity rising from 12% to 18%
and accelerating growth
Allianz is one of Sebastian Wolf's (DK and iREIT's European expert) top 20 "buy and hold forever" companies.
Fundamentally speaking, I view Allianz as one of the safest investments on the planet. It goes in the "too big to fail" basket, with incredible diversification and operational width." - Sebastian Wolf (emphasis orginal)
And management expects to remain a wonderful long-term dividend investment.
Allianz strives to offer attractive dividends to its shareholders. The framework for this is determined by our net income and the need for adequate capitalization.
The regular pay-out remains at 50% of Allianz Group's net income (attributable to shareholders), however, adjusted for extraordinary and volatile items.
In the interest of an attractive dividend policy, the further objective is to pay a dividend per share in an amount of at least 5% above the amount of the previous year. This shall already apply to the dividend for fiscal year 2021.
In addition, Allianz returns excess capital to its shareholders on a flexible basis, e.g. through share buybacks.
The dividend policy is subject to a sustainable Solvency II capitalization ratio now above 150% (excluding transitional measures) - Allianz dividend policy
Management's dedication to safe and rising dividends is clear from its dividend policy.
targeting 180+% solvency ratio (80+% above regulatory minimums)
5+% dividend growth over time
50% payout ratio (rating agencies say 50% is safe for insurance companies)
In 2021 Allianz's capital ratio was 260%, or nearly 3X the regulatory minimum.
in the pandemic, it was 257%
this is why rating agencies consider Allianz the world's safest and best-run insurance company
Management return guidance: 4.9% yield + 5% to 7% EPS/dividend growth = 9.9% to 11.9% CAGR long-term returns vs 9.9% S&P 500 consensus.
Management is also targeting rising customer satisfaction, employee satisfaction, and long-term risk management leadership (from rating agencies).
Better returns, better yield, and much lower risk. That's the value proposition of Allianz.
Allianz Quantitative Analysis: The Math Backing Up The Investment Thesis
Allianz Credit Ratings
Rating Agency Credit Rating 30-Year Default/Bankruptcy Risk Chance of Losing 100% Of Your Investment 1 In S&P AA stable 0.51% 196.1 Fitch AA- stable 0.55% 181.8 Moody's Aa3 (AA- equivalent) Stable 0.55% 181.8 AmBest A+ stable 0.60% 166.7 Consensus AA- stable 0.55% 181.0
(Sources: S&P, Fitch, Moody's, AMBest)
Allianz is the highest-rated private insurance company in the world.
A 1 in 181 chance of losing all your money in the next 30 years.
Allianz Bond Profile
well-staggered debt maturities
bond investors are so confident in Allianz's long-term growth plan they are willing to lend to it for 23 years at 3.55%
Allianz Credit Default Swaps: Bond Market's Real-Time Fundamental Risk Assessment
Credit default Swaps are insurance policies bond investors take out against default.
the bond market's real-time estimate of fundamental risk
very useful when headlines are scary and stock prices are crashing
Allianz's fundamental risk has risen somewhat after the invasion of Ukraine
but is still low on an absolute basis and consistent with A- positive outlook credit ratings
when the stock price is crashing but the fundamental risk remains stable you can buy with more confidence
analysts, rating agencies, and the bond market are all confirming ALIZY's investment thesis remains intact
Allianz Profitability: Wall Street's Favorite Quality Proxy
Allianz historically has above-average profitability, in the top 30% of peers.
In 2021, they were impacted by pandemic-related expenses (excess deaths) and various global catastrophes.
For context, many insurance companies run combined ratios (payouts/revenue) of more than 100%.
In 2020, Ernst & Young estimates a 100.7% average industry combined ratio
insurance companies lost money on policies
98.6% combined ratio for the best insurance companies
Allianz was 96.3% (3.7% profitability on policies even with maximum pandemic impact)
Allianz's combined ratio peaked at 96.3% during the pandemic and is expected to fall to 92% to 93% in the future (94% to 95% historical range in the last decade)
In the last 13 years, the peak combined ratio was 98.4% during 2009
Even in the worst financial crisis in over 75 years Allianz's superior risk management meant it still made a profit on its policy underwriting
Allianz is a master at conservative underwriting and risk management
Allianz Trailing 12-Month Profitability Vs Peers
Metric Industry Percentile Major Insurance Companies More Profitable Than ALIZY (Out Of 501) Net Margin 43.97 281 Return On Equity 48.79 257 Return On Assets 28.14 360 Average 40.30 299
(Source: Gurufocus Premium)
Allianz's profitability fell to the 40th percentile during the pandemic, but analysts are confident that profitability will spring back quickly once this crisis passes.
Allianz has had relatively stale profitability for the last 20 years, confirming a narrow and stable moat.
Allianz Profit Margin Consensus Forecast
Year FCF Margin EBIT (Operating) Margin Net Margin 2020 5.6% 7.7% 4.8% 2021 4.4% 9.0% 4.5% 2022 3.4% 9.0% 5.7% 2023 3.4% 9.1% 6.1% 2024 3.0% 9.2% 6.1% 2025 NA 9.3% 6.5% Annualized Growth -14.67% 3.98% 5.89% Annualized Growth (Ignoring Pandemic -12.07% 0.76% 9.72%
(Source: FactSet Research Terminal)
FCF margins are expected to fall due to heavier growth spending.
But operating margins and net margins are expected to grow steadily, and almost double-digits for net margins.
Allianz Tax Consensus Forecast
Year Pre-Tax Profit Tax Costs Tax Rate 2020 $11,656 $2,997 25.71% 2021 $10,796 $2,739 25.37% 2022 $14,003 $3,455 24.67% 2023 $15,595 $3,931 25.21% 2024 $16,263 $4,110 25.27% 2025 $17,269 $4,055 23.48% Annualized Growth 8.18% 6.23% -1.80% Total Taxes 2020 through 2025 $21,287
(Source: FactSet Research Terminal)
Allianz's historical tax rate is about 25%, and that's expected to continue in the future.
Allianz Dividend Consensus Forecast
Year Dividend Consensus EPS/Share Consensus Payout Ratio Retained (Post-Dividend) Earnings Buyback Potential 2021 $1.22 $1.80 67.8% $2,368 2.70% 2022 $1.28 $2.50 51.2% $4,980 5.68% 2023 $1.36 $2.75 49.5% $5,674 6.47% 2024 $1.45 $2.97 48.8% $6,205 7.08% 2025 $1.64 $3.44 47.7% $7,348 8.38% Total 2021 Through 2025 $6.95 $13.46 51.6% $26,573.82 30.32% Annualized Rate 7.68% 17.58% -8.42% 32.73% 32.73%
(Source: FactSet Research Terminal)
50% is the safe payout ratio for insurance companies according to rating agencies and that's management's long-term payout ratio policy.
Analysts expect Allianz to maintain that over time, allowing it to grow the dividend about 7.5% annually while retaining almost $27 billion in post-dividend earnings.
That's enough to potentially buy back 30% of its shares at current valuations.
Allianz Buyback Consensus Forecast
Year Consensus Buybacks ($ Millions) % Of Shares (At Current Valuations) Market Cap 2022 $1,844.0 2.1% $87,635 2023 $2,128.0 2.4% $87,635 2024 $2,268.0 2.6% $87,635 2025 $3,389.0 3.9% $87,635 Total 2022-2025 $9,629.00 11.0% $87,635 Annualized Rate 2.87% Average Annual Buybacks $2,407.25
(Source: FactSet Research Terminal)
Analysts expect $2.4 billion in buybacks through 2025, or nearly 3% per year at current valuations.
ALIZY began buying back shares in 2017 and has averaged a net rate of 1.9% annually since then.
Time Frame (Years) Net Buyback Rate Shares Remaining Net Shares Repurchased 5 1.9% 90.85% 9.15% 10 1.9% 82.54% 17.46% 15 1.9% 75.00% 25.00% 20 1.9% 68.14% 31.86% 25 1.9% 61.90% 38.10% 30 1.9% 56.24% 43.76% 35 1.9% 51.10% 48.90% 40 1.9% 46.43% 53.57% 45 1.9% 42.18% 57.82% 50 1.9% 38.32% 61.68% 55 1.9% 34.82% 65.18% 60 1.9% 31.63% 68.37% 65 1.9% 28.74% 71.26% 70 1.9% 26.11% 73.89% 75 1.9% 23.72% 76.28% 80 1.9% 21.55% 78.45% 85 1.9% 19.58% 80.42% 90 1.9% 17.79% 82.21% 95 1.9% 16.16% 83.84% 100 1.9% 14.69% 85.31%
That might not sound impressive, but it adds up over time.
In the next decade, alone Allianz could reduce its share count by 17.5%.
Bottom line, Dividend Kings, Sebastion Wolf, and the rating agencies consider Allianz to be the world's safest, best run, and highest quality insurance company.
In other words, this is a 5% yield retirees can trust in all economic and market conditions.
Reason Two: Solid Growth Prospects For Decades To Come
What kind of growth do analysts expect from Allianz in the next few years?
Allianz Medium-Term Consensus Forecast
Year Sales Free Cash Flow EBIT (Operating Income) Net Income 2020 $170,384 $9,565 $13,038 $8,255 2021 $168,822 $7,390 $15,234 $7,515 2022 $172,603 $5,909 $15,595 $9,919 2023 $179,084 $6,152 $16,263 $10,914 2024 $187,859 $5,590 $17,269 $11,553 2025 $193,997 NA $18,045 $12,515 Annualized Growth 2.63% -12.57% 6.72% 8.68% Annualized Growth (Ignoring Pandemic 3.54% -8.89% 4.32% 13.60%
(Source: FactSet Research Terminal)
Allianz isn't just the biggest insurance company on Earth, it's also one of the fastest-growing as far as net income goes. By 2027, it could be generating over $200 billion in revenue.
Metric 2021 Growth Consensus 2022 Growth Consensus 2023 Growth Consensus 2024 Growth Consensus (Bond Market Recession Forecast) 2025 Growth Consensus (Recession Recovery) Sales -4% 34% 4% NA NA Dividend 13% 7% 6% 7% 14% EPS -9% 39% 10% 8% 16% Operating Cash Flow 174% 12% 4% NA NA Free Cash Flow -22% 6% 2% NA NA Book Value -1% 9% 5% 4% NA
(Source: FAST Graphs, FactSet Research Terminal)
Even with recession risks rising, analysts expect strong growth from Allianz both in terms of earnings and dividends in the future.
Allianz Long-Term Growth Outlook
Analysts (especially Deutsche Bank) are very bullish on Allianz's growth prospects, but we're using mid-range management guidance of 6% in our long-term return models.
FAST Graphs doesn't have much historical data for ALIZY (only since 2019) so we're using the available margins-of-error of 5% to the upside and 15% to the downside
creating a 5% to 21% CAGR margin-of-error adjusted growth range of 5% to 20% (including management guidance range)
What does that mean for income investors?
Investment Strategy Yield LT Consensus Growth LT Consensus Total Return Potential Long-Term Risk-Adjusted Expected Return Long-Term Inflation And Risk-Adjusted Expected Returns Years To Double Your Inflation & Risk-Adjusted Wealth 10 Year Inflation And Risk-Adjusted Return Safe Midstream 5.5% 6.0% 11.5% 8.1% 5.9% 12.3 1.77 Allianz (Management Guidance) 4.9% 6.00% 10.9% 7.6% 5.5% 13.2 1.70 Allianz (Consensus) 4.9% 16.70% 21.6% 15.1% 12.9% 5.6 3.38 Realty Income 4.6% 5.2% 9.8% 6.9% 4.7% 15.4 1.58 Safe Midstream + Growth 3.3% 8.5% 11.8% 8.3% 6.1% 11.8 1.80 REITs 2.9% 6.5% 9.4% 6.6% 4.4% 16.4 1.54 High-Yield 2.8% 11.3% 14.1% 9.9% 7.7% 9.4 2.10 Europe 2.6% 12.8% 15.4% 10.7% 8.6% 8.4 2.27 10-Year US Treasury 2.3% 0.0% 2.3% 1.6% -0.5% -131.1 0.95 Dividend Aristocrats 2.2% 8.9% 11.1% 7.8% 5.6% 12.9 1.72 60/40 Retirement Portfolio 2.1% 5.1% 7.2% 5.1% 2.9% 24.9 1.33 Stanley Black & Decker 2.1% 10.0% 12.1% 8.5% 6.3% 11.4 1.84 Value 2.1% 12.1% 14.1% 9.9% 7.7% 9.3 2.10 REITs + Growth 1.8% 8.9% 10.6% 7.4% 5.2% 13.7 1.67 High-Yield + Growth 1.7% 11.0% 12.7% 8.9% 6.7% 10.8 1.91 Dividend Growth 1.6% 8.0% 9.6% 6.7% 4.5% 15.9 1.56 S&P 500 1.4% 8.5% 9.9% 7.0% 4.8% 15.1 1.59 Nasdaq (Growth) 0.8% 10.7% 11.5% 8.1% 5.9% 12.3 1.77
(Sources: Morningstar, FactSet, Ycharts)
Analysts expect explosive growth from Allianz, to drive Buffett-like returns.
Management says about 11% long-term returns are likely, about 1% more than the S&P 500.
but with more than 3X the much safer yield
and minimal fundamental risk (Allianz has NEVER missed a dividend payment, not in 132 years)
And guess what? Even in a 17% overvalued market, Allianz is the classic Buffett-style "wonderful company at a fair price".
Reason Three: A Wonderful Company At A Fair Price
FAST Graphs only has two years of data for ALIZY
The fair value range of 11 to 14 PE is estimated based on the available data.
Ycharts also has just two years of data
To estimate ALIZY's historical fair value PE we're using GuruFocus Premium (Morningstar data)
13-year median PE (modern low rate/higher regulatory environment) 10.63
13-year range: 5.1 (pandemic low) to 14.5 (bubble)
Reasonable range: 9 to 12 PE
Metric Historical Fair Value Multiples (all years) 2021 2022 2023 2024 12-Month Forward Fair Value 13-Year Median Yield 4.38% $27.85 $26.60 $26.60 $33.11 Earnings 10.63 $19.13 $26.58 $29.23 $31.57 Average $22.68 $26.59 $27.85 $32.32 $26.88 Current Price $23.69 Discount To Fair Value -4.43% 10.89% 14.95% 26.70% 11.86% Upside To Fair Value (NOT Including Dividends) -4.24% 12.23% 17.57% 36.43% 13.46% (19% including dividend) 2022 EPS 2023 EPS 2022 Weighted EPS 2023 Weighted EPS 12-Month Forward EPS 12-Month Average Fair Value Forward PE Current Forward PE $2.50 $2.75 $1.92 $0.63 $2.56 10.5 9.3
We estimate Allianz is worth about 10.5X earnings and today trades at 9.3.
no investor in history (that avoided becoming a forced seller for emotional or financial reasons) has ever regretted buying ALIZY at 9.3X earnings
based on current data, there is an 80% chance today won't be the first time
Analyst Median 12-Month Price Target Morningstar Fair Value Estimate $28.42 (10.3 PE) $24.74 (9.7 PE) - quantitative model based on industry peers Discount To Price Target (Not A Fair Value Estimate) Discount To Fair Value 16.64% 4.24% Upside To Price Target (Not Including Dividend) Upside To Fair Value (Not Including Dividend) 19.97% 4.43% 12-Month Median Total Return Price (Including Dividend) Fair Value + 12-Month Dividend $29.59 $25.91 Discount To Total Price Target (Not A Fair Value Estimate) Discount To Fair Value + 12-Month Dividend 19.93% 8.55% Upside To Price Target ( Including Dividend) Upside To Fair Value + Dividend 24.88% 9.35%
Morningstar's quantitative model is based on the current values of industry peers.
ALIZY trades at a premium to peers because of superior quality and risk management
Analysts expect ALIZY to return to fair value within a year, generating 25% total returns.
Rating Margin Of Safety For Low-Risk 12/13 Super SWAN Quality Companies 2022 Price 2023 Price 12-Month Forward Fair Value Potentially Reasonable Buy 0% $26.59 $27.85 $26.88 Potentially Good Buy 10% $23.93 $25.07 $24.19 Potentially Strong Buy 20% $21.27 $22.28 $21.50 Potentially Very Strong Buy 30% $16.75 $19.50 $18.82 Potentially Ultra-Value Buy 40% $15.95 $16.71 $16.13 Currently $23.69 10.89% 14.95% 11.86% Upside To Fair Value (Not Including Dividends) 12.23% 17.57% 13.46%
For anyone comfortable with its risk profile, Allianz is a potentially good buy, and here's why.
Consensus Return Potential That Far Exceeds The Market
For context, here's the return potential of the 18% overvalued S&P 500.
Year EPS Consensus YOY Growth Forward PE Blended PE Overvaluation (Forward PE) Overvaluation (Blended PE) 2021 $206.32 50.39% 20.7 21.4 20% 22% 2022 $225.15 9.13% 20.0 20.4 16% 16% 2023 $247.63 9.98% 18.2 19.1 6% 9% 2024 $274.54 10.87% 16.4 17.3 -4% -2% 12-Month forward EPS 12-Month Forward PE Historical Overvaluation PEG 25-Year Average PEG S&P 500 Dividend Yield 25-Year Average Dividend Yield $227.41 19.839 17.88% 2.33 3.62 1.44% 2.01%
(Source: DK S&P 500 Valuation And Total Return Tool) updated weekly
Stocks have already priced in 96% EPS growth from 2020 through 2024 and are trading at 18.5X forward earnings.
16.84 is the 25-year average
14% correction needed to get back to historical market fair value
S&P 500 2027 Consensus Return Potential
Year Upside Potential By End of That Year Consensus CAGR Return Potential By End of That Year Probability-Weighted Return (Annualized) Inflation And Risk-Adjusted Expected Returns 2027 34.75% 6.15% 4.61% 1.27%
(Source: DK S&P 500 Valuation And Total Return Tool)
Adjusted for inflation, the risk expected returns of the S&P 500 are about 1.3% for the next five years.
S&P's historical inflation-adjusted returns are 6% to 7% CAGR
S&P Earnings Yield 10-Year US Treasury Yield Earning Yield Risk Premium (3.7% 10 and 20-year average) 5.04% 2.37% 2.67% Theoretical Interest Rate Justified Market Fair Value Forward PE Current PE Theoretically Interest Rate Justified Market Decline 16.47 19.84 17.00%
(Source: DK S&P 500 Valuation And Total Return Tool) updated weekly
Even adjusting for low (and rising) interest rates, stocks still require an even larger 17% correction before they become theoretically fairly valued.
But here's what investors buying ALIZY today can reasonably expect (5% to 20% growth and 9 to 12 PE)
5-year consensus return potential range: 8% to 19% CAGR
Allianz 2023 Consensus Return Potential
If ALIZY grows as expected and returns to historical fair value, it could deliver 35% total returns in the next two years, or 18% annually.
Buffett-like returns from a blue-chip bargain hiding in plain sight
Allianz 2027 Management Guidance Return Potential
Over the next five years, management thinks it can almost double your money, delivering 3X better return than the S&P 500.
And with more than 3X the yield right up front. From a company that hasn't missed a dividend payment in 132 years.
Risk Profile: Why Allianz Isn't Right For Everyone
There are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.
Allianz's Risk Profile Summary
regulatory risk: mostly pertaining to tax rates and capital requirements
interest rate risk: portfolio yield affected by interest rates
equity risk: from the stocks they own in their portfolios
credit spread risk: bond values are affected by credit market conditions
inflation risk: higher inflation hurts reinsurance profits
currency risk: ALIZY operates in over 70 countries (uses hedges to manage this)
underwriting risk: potentially larger than expected losses due to disasters and black swans like pandemics
credit risks: if counterparties fail
labor retention risk (tightest job market in over 50 years and finance is a high paying industry) - rising wage pressures around the world
accounting fraud risk: significantly less than 17.5% statistical chance of accounting fraud
Recession Watch
The bond futures market expects the 10-2 yield curve to invert in July and a mild recession to begin around February 2024.
Bonds Yield 3-Month Treasury Yield 0.53% 2-Year Treasury Yield 2.14% 10-Year Treasury Yield 2.37% 10-3M Curve (Most Accurate Recession Forecasting Tool) 1.85% 10-2 Curve (Most Popular Yield Curve Followed By Wall Street) 0.23% (up from recent low of 0.15%) Bond Futures Pricing In Inversion June 2022 Bond Futures Pricing In Recession Start January 2024
(Source: DK S&P 500 Valuation & Total Return Tool)
The 10-2 curve is the most closely watched by Wall Street but a study from the NY Fed finds that the 10-3M curve is the most accurate at forecasting recessions.
Currently, the bond market is mildly concerned about recession risk and we are monitoring the situation closely each day.
recession scare is likely in the next few months
yield curve + BaR economic grid makes it very likely that we'll see a recession coming at least 12 months out
How do we quantify, monitor, and track such a complex risk profile? By doing what big institutions do.
Material Financial ESG Risk Analysis: How Large Institutions Measure Total Risk
What Investors Need To Know About Company Long-Term Risk Management (Video)
Here is a special report that outlines the most important aspects of understanding long-term ESG financial risks for your investments.
ESG is NOT "political or personal ethics based investing"
it's total long-term risk management analysis
“ESG is just normal risk by another name." Simon MacMahon, head of ESG and corporate governance research, Sustainalytics" - Morningstar
ESG factors are taken into consideration, alongside all other credit factors, when we consider they are relevant to and have or may have a material influence on creditworthiness." - S&P
ESG is a measure of risk, not of ethics, political correctness, or personal opinion.
S&P, Fitch, Moody's, DBRS (Canadian rating agency), AMBest (insurance rating agency), R&I Credit Rating (Japanese rating agency), and the Japan Credit Rating Agency have been using ESG models in their credit ratings for decades.
credit and risk management ratings make up 41% of the DK safety and quality model
dividend/balance sheet/risk ratings make up 82% of the DK safety and quality model
Allianz Long-Term Risk Management Consensus
Rating Agency Industry Percentile Rating Agency Classification MSCI 37 Metric Model 100% AAA Industry Leader, Stable Trend Morningstar/Sustainalytics 20 Metric Model 93.2% 16.1/100 Low-Risk Reuters'/Refinitiv 500+ Metric Model 100.0% Exceptional, #1 Industry Leader S&P 1,000+ Metric Model 93.0% Exceptional- Stable Trend FactSet 50.0% Average- Positive Trend Morningstar Global Percentile 88.4% Very Good Consensus 87.4% Very Good, Bordering On Exceptional
(Sources: MSCI, Morningstar, Reuters', S&P, FactSet Research)
Allianz Long-Term Risk Management Is The 20th Best In The Master List (96th Percentile)
For context:
master list average: 62nd percentile
dividend kings: 63rd percentile
aristocrats: 67th percentile
Ultra SWANs: 71st percentile
Allianz's risk management consensus is in the top 4% of the world's highest quality companies and similar to that of such other companies as
Amgen (AMGN)
Enbridge (ENB) - global aristocrat
3M (MMM) - dividend king
Bank of Nova Scotia (BNS)
Texas Instruments (TXN)
Lockheed Martin (LMT)
Colgate-Palmolive (CL) - dividend king
Microsoft (MSFT)
Adobe (ADBE)
The bottom line is that all companies have risks, and Allianz is very good (bordering on exceptional) at managing theirs.
How We Monitor Allianz's Risk Profile
19 analysts
4 credit rating agencies
8 total risk rating agencies
27 experts who collectively know this business better than anyone other than management
and the bond market for real-time fundamental risk analysis
“When the facts change, I change my mind. What do you do sir?" - John Maynard Keynes
There are no sacred cows at iREIT or Dividend Kings. Wherever the fundamentals lead we always follow. That's the essence of disciplined financial science, the math for retiring rich and staying rich in retirement.
Bottom Line: The Best Insurance Company In The World Is A Good Buy
Guess what companies benefit most from rising interest rates? Financials, including insurance companies.
And guess what interest rates are doing now? Soaring, and that's expected to continue for the next few months or even several years.
But we never recommend blue chips just because they are a great way to profit from a high probability macro event.
Reasons To Potentially Buy Allianz Today
96% quality low-risk 12/13 Super SWAN quality insurance company
the world's best insurance company according to rating agencies
very safe 4.9% yield (97% safety score)
2-year dividend growth streak (frozen during the pandemic)
12% conservatively undervalued (potential good buy)
Fair Value: $29.33
9.3 PE vs 9 to 12 historical (10.63X 13-year median)
AA stable outlook credit rating = 0.51% 30-year bankruptcy risk
risk management consensus 87th industry percentile = Very Good
risk management top 4% of the world's best companies
5% to 20% CAGR margin-of-error growth consensus range
16.7% CAGR median growth consensus
management guidance: 5% to 7% CAGR growth
5-year consensus total return potential: 8% to 19% CAGR
base-case 5-year consensus return potential: 11% CAGR (3X market consensus)
consensus 12-month total return forecast: 25%
Fundamentally Justified 12-Month Returns: 19% CAGR
Is your goal maximum safe yield?
Then buy 5% yielding Allianz, which hasn't missed a dividend in 132 years.
WWI, WWII, the Great Depression, and a flu pandemic that wiped out 5% of humanity weren't enough to sink this dividend.
Want maximum safety and quality?
Rating agencies and the 241 point DK safety and quality model say there is literally no higher quality insurance company on earth.
Looking for market-beating long-term returns and foreign diversification? Allianz has you covered.
In a scary world full of risks, managing those risks is the key to retiring in safety and splendor.
And when it comes to understanding and managing risk, no one does it better than insurance companies.
And when it comes to the ultimate risk management king, Allianz is a name you can trust to see you through literally anything that could be coming next for the economy and stock market.
Author's Note: Brad Thomas is a Wall Street writer, which means he's not always right with his predictions or recommendations. Since that also applies to his grammar, please excuse any typos you may find. Also, this article is free: written and distributed only to assist in research while providing a forum for second-level thinking.
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