Our economy is expanding and I am bullish on America. Some sectors in our economy will see larger growth prospects over others. One sector is the financial sector. I have been spending a lot of time looking through banks and insurance companies because I believe the growth potential is greatest for those companies.
American Equity Investment Life Holding Company is an insurance company that specializes in fixed index and fixed rate annuities. A fixed index and fixed rate annuity guarantees purchaser of those products increases in the index but shields the purchaser from any downside moves. This allows for an interesting investment.
Out of tens of thousands of stocks, funds, and ETFs that trade on global exchanges each represent an individual company which you can analyze using comparative analysis. To determine which one of the two entities, such as American or Brighthouse is a better fit for your portfolio, analyzing a few basic fundamental indicators is a good first step.
understanding American Equity dividends
A dividend is the distribution of a portion of American Equity earnings, decided and managed by the company's board of directors and paid to a class of its shareholders. Note, announcements of dividend payouts are generally accompanied by a proportional increase or decrease in a company's stock price. American Equity dividend payments follow a chronological order of events, and the associated dates are important to determine the shareholders who qualify for receiving the dividend payment. American one year expected dividend income is about USD0.13 per share.
Dividend Payout Ratio is expected to rise to 0.22 this year, although the value of
Dividends Paid is projected to rise to (41.5
M).
Investing in stocks that pay
dividends, such as stock of American Equity Investment, is one of many strategies that are good for long-term investments. Ex-dividend dates are significant because investors in American Equity must own a stock before its ex-dividend date to receive its next dividend.
This type of analysis is very useful when you want to generate a past dividend schedule and payout information for American Equity. Then that information in the form of graph and calendar can be used to fully explain how Du Pont dividends can provide a real clue to its valuation.
How important is American Equity's Liquidity
American Equity
financial leverage refers to using borrowed capital as a funding source to finance American Equity Investment ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. American Equity financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to American Equity's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of American Equity's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the
breakdown between American Equity's total debt and its cash.
Correlation Between American and Brighthouse Financial
In general, Stock analysis is a method for investors and traders to make individual buying and selling decisions. Stock correlation analysis is also essential because it can help investors realize that they may not be as diversified as they think. Risk management strategies are usually required to make sure all portfolios are properly aligned against their risk tolerance level. You can consider holding American Equity together with similar or unrelated positions with a negative correlation. For example, you can also add Brighthouse Financial to your portfolio. If Brighthouse Financial is not perfectly correlated to American Equity it will diversify some of the market risks out of the positively correlated stocks in your portfolio. However, the disadvantage of this sort of hedging is that it can potentially affect your investment returns throughout market cycles. When American Equity, for example, performs excellent and delivers stable returns, the negatively correlated position you locked in as a hedge may drag your returns down.
Are you currently holding both American Equity and Brighthouse Financial in your portfolio? Please note if you are using this as a pair-trade strategy between American Equity and Brighthouse Financial, watch out for correlation discrepancy over time. Relying on the historical price correlations and assuming that it will not change may lead to short-term losses. Please check
pair correlation details between AEL and BHFAP for more information.
What is driving American Equity Investor Appetite?
Our economy is expanding and I am bullish on America. Some sectors in our economy will see larger growth prospects over others. One sector is the financial sector. I have been spending a lot of time looking through banks and insurance companies because I believe the growth potential is greatest for those companies.
American Equity Investment Life Holding Company is an insurance company that specializes in fixed index and fixed rate annuities. A fixed index and fixed rate annuity guarantees purchaser of those products increases in the index but shields the purchaser from any downside moves. This allows for an interesting investment.
Another key variable in an insurance company’s earnings is its ability to properly assess risk and what it will pay out to an individual. There are reams, and reams of books with data relating to payouts for insurance companies based upon predictability of human behavior. AEL has done an aboveboard job in assessing these risks and creating premiums based upon that.
Currently, AEL is trading at $23.60 per share and has a market cap of $2 billion, so a bit on the smaller side of equities. I like the other numbers this company shows, specifically the total investments:
2012: $27,537
2013: $30,347
2014: $35,982
2015: $39,570
Investments continue to increase; a sign the company is growing with the economy. Investments are how an insurance company pays out its policies. The actuaries predict how much an insurance company pays out. The objective of an insurance company is then to outperform the markets and the payouts that the company is obligated towards. The spread of what the investments earn versus what the company is obligated to pay is its profits.
Given that criteria the company has performed well. Here are both the total sales for AEL as well as earnings-per-share, respectively:
2012: $1,382 / $0.95
2013: $1,567 / $3.86
2014: $1,677 / $1.69
2015: $1,855 / $2.78
Sales are very steadily increasing and so are earnings-per-share. Keep in mind the significant downturn in the economy during 2014. Despite the world coming to a screaming halt, the company was both still profitable and effectively kept a strong sales-to-earnings ratio. However, the ratio of the two is increasing, favoring the company’s diligence with both investments and actuary fidelity.
As the stock market continues to increase in value, especially at the rate it has been moving, the products that AEL has sold will outperform the obligations. This elevated differential will ultimately make it simpler for AEL to increase its earnings per share regularly.
But, what I see as the most compelling aspect of this company is its earnings-per-share ratio; the company’s stock is trading at $23.60 per share and its earnings are at $2.78 per share. That puts the stock at less than 10-times earnings ratio. You can buy this company and effectively get an 11% return on your investment.
The financial stocks have been left behind as the entire stock market moves higher and higher. The average EPS ratio for the entire market is sitting well over 25. This is a huge opportunity if you are looking for bargain stocks with an excellent EPS ratio. Eventually, as individuals lose interest in such rick stocks that have pushed the average so high, those individuals will be looking for more realistic ratios in a company. AEL will see its stock price mover higher. Much higher. If the EPS ratio hit 15-times, the average for the stock market over the past 50 years, this stock would be sitting at $40 per share. Reason enough to buy into this company.
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David Taylor is a Senior Member of Macroaxis Editorial Board - Sector Analysis. David is a professional writer who writes for multiple investment news outlets. His primary focus is dynamic movements in financial markets and effects of economic volatility on North American industries and sectors. David has many years of experience in financial service industry including working with major banks as a FX trader. In his free time, he does a lot of outdoors type activities including rock climbing, mountain biking, hiking, mountaineering and kayaking in the summer, and snowboarding in the winter.
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