Quick post this morning on some worthwhile news this week out of my stealth dividend darling Fairfax which I posted on here.
On January 5th 2011Fairfax Financial Holdings (FFH.TO on the TSX or FRFHF.PK in the US) declared its annual 2010 dividend. The full press release is here. The 2010 dividend is $10 USD per share, the same dividend level as 2009. Based on Friday’s US closing price of $407 US per share, the dividend yield on the shares is a nice 2.5%.
I didn’t expect the maintenance of this high dividend level (at least for Fairfax) after the massive increase from the 2008 dividend of $2 to 2009’s $10. But I should know better, these guys really tend to under promise and over deliver. If they grow their book value this year at their stated goal of 15% (and the share follow suit as they usually do) then the stock will return 17.5% in 2011. I also expect Fairfax to buy back some shares in 2011.
Shares in Fairfax continue to trade right around the Q310 ending book value of $401 per share. This continues to be historically cheap and I think offers a great time to buy. Year end 2010 book value is tough to gauge. I expect their insurance businesses to still be having a rough time with combined ratios above 100% (the P&C industry is in a soft cycle). The stock portion of their investment portfolio (23%) should have done very well in Q410 but the bond portfolio (58%) may have taken a mark to market hit because of the jump in rates in Q410. Not knowing the duration of their bond portfolio makes it tough to asses the overall impact. As a long term share holder I wouldn’t mind a mark to market hit on book value that allows me to buy more shares at a discount.
One further note on valuation. Credit Suisse recently put out a report on the US P&C Insurance industry, of which Fairfax is not even covered, that contained a valuation chart that was quite telling;
I think ‘reasonable valuation’ is an understatement. I interpret that chart as saying ‘cheap’. In addition, despite the ‘reasonable’ valuation, they still don’t like the industry because of the soft pricing cycle its in. This may be fine for the average insurer but for Fairfax with its stellar investment record this kind of thinking is yet another reason to be bullish. Its being treated just like any other P&C insurer or even better is not even on their radar screen.
Finally, in mid February Fairfax will be announcing year end 2010 results which will give a much more detailed picture of 2010 results and even better will allows us to read CEO Prem Watsa’s annual letter, always a treat. I will write up a summary of the 2010 results when the time comes.
Disclosure: Long FFH
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