Linked here is a PDF copy of my detailed analysis of RLI Corp (RLI). Below are some highlights from the above linked analysis:
Company Description: RLI Corp, based in Peoria, IL, provides selected property, casualty and surety insurance.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
RLI is trading at a discount to 1.), 2.) and 4.) above. If I exclude the high and low valuations and average the remaining two, RLI is trading at a 7.1% discount. RLI earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
RLI earned three Stars in this section for 1.), 2.) and 3.) above. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (1998-2001, 1999-2002, 2000-2003, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. RLI has paid a cash dividend to shareholders every year since 1976 and has increased its dividend payments for 34 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to >MMA
RLI earned one Star in this section for 1.) above. The NPV MMA Diff. of the $4,814 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as RLI has. If RLI grows its dividend at 15.0% per year, it will take 11 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.61%. The 11 years is more than the 10 years maximum I like to see.
Other: RLI is a member of the Broad Dividend Achievers™ Index. In the third quarter, RLI was honored as one of the industry’s top performing companies by theWard’s Top 50 list. Among the 3,000 property and casualty insurers, RLI is one of only five to be recognized for 18 straight years since the award’s inception for excellence.
Conclusion: RLI earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a net total of five Stars. This quantitatively ranks RLI as a 5 Star-Strong Buy.
Using my D4L-PreScreen.xls model, I determined the share price could decrease to $52.62 and RLI’s NPV MMA Differential would still be around the $3,000 that I like to see. At that price the stock would yield 1.82%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $3,000 NPV MMA Differential I’m looking for, the calculated rate is 13.9%. This dividend growth rate is below the 15.0% used in this analysis.
If RLI was a stock that I wanted to add to add to my income portfolio, I would wait for it to dip below $52.62, my buy below price.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in RLI (0.0% of my Income Portfolio) .
What are your thoughts on RLI?