Have a $1700.00 target. GLTA
EQUITY RESEARCH
FAIRFAX FINANCIAL HOLDINGS LIMITED
Sizeable Dividend Increase Caps A Strong Year
Our Take: Capping a strong year where the company’s shares advanced
over 50%, Fairfax announced a commensurate increase to its annual
dividend (the first raise in 14 years). Considering the very low payout ratio
and expansion of earnings power over the past several years, we are not
particularly surprised about the magnitude of the increase. The yield
becomes more comparable to peers following an exceptional period of
outperformance and we believe remains highly sustainable going forward.
We would not necessarily construe the raise as a major market-moving
event, but acknowledge that it could be received positively by a subset of
investors who have a bias for companies demonstrating dividend growth over
time.
Key Metrics:
Dividend increased 50%. Fairfax announced an increase to its annual
dividend from US$10 per share to US$15. The company attributed the
decision to the substantial growth it has experienced since inaugurating the
US$10 dividend over a decade ago, and the outlook for strong earnings over
the next few years. The magnitude of the dividend increase is not particularly
surprising considering the relatively low payout ratio and the fact that
earnings estimates have increased from ~US$40/share five years ago to
~US$140/share today.
Yield becomes generally more comparable to peers. The yield increases
from 1.1% to 1.7% (based on yesterday’s closing price), supported by a very
conservative payout ratio of 11% (up from 7% previously) based on 2024
consensus EPS estimates. This makes the yield more comparable to peers
following a more than 50% run-up in Fairfax shares in 2023. Intact Financial
(IFC-TSX) offers a dividend yield of 2.2%.