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Dividend Aristocrats In Focus: Brown & Brown, Inc.

Updated on January 31st, 2023 by Nikolaos Sismanis

The Dividend Aristocrats are some of the best dividend stocks an investor will find. These are companies in the S&P 500 Index, with 25+ consecutive years of dividend increases.

We believe the Dividend Aristocrats are among the highest-quality dividend growth stocks around. For this reason, we created a downloadable spreadsheet of all 68 Dividend Aristocrats, along with important metrics such as price-to-earnings ratios and dividend yields.

You can download the Excel sheet of all 68 Dividend Aristocrats by clicking the link below:


Each year, we review all of the Dividend Aristocrats. The next stock in the series is an insurance broker giant, Brown & Brown Inc. (BRO). BRO might not be a familiar stock for most investors, but it has certainly earned its place on the list.

BRO has now increased its dividend for an amazing 29 consecutive years. The company’s dividend is also very safe.

BRO stock experienced a multi-year rally in share price between 2010 and 2021, as the company benefited from steady economic growth during this period. The stock has corrected substantially over the past year, similar to most insurers, due to a tough macro landscape. However, the company’s financials have been strong in the meantime, resulting in shares now trading at a rather fair valuation.

Business Overview

Brown & Brown Inc. is a leading insurance brokerage firm that provides risk management solutions to both individuals and businesses, with a focus on property & casualty insurance. Brown & Brown has a notably high level of insider ownership. Overall, Brown & Brown is a very shareholder-friendly company, as its 29-year streak of consecutive dividend increases qualifies it to be a member of the Dividend Aristocrats list. The company employs about 14,500 people and generated about $3.6 billion in revenue last year. Brown & Brown trades with a $16.3 billion market capitalization.

Source: Investor Presentation

The company operates through four segments: the Retail Segment, which provides a range of insurance products and services to commercial, public and quasi-public entities, and professional and individual customers; the National Programs Segment, which acts as a general managing agent, provides professional liability and related package products; the Wholesale Brokerage Segment, which markets and sells excess and surplus commercial and personal lines insurance, and the Services Segment, which provides insurance-related services, including third-party claims administration and medical utilization management services.

The company has been diversifying its business segment throughout the years. Doing this allows the company to not be 100% dependent on one business segment. Thus, these segments have performed very well against their peers and have allowed BRO to achieve “best of breed” status in its industry.

Growth Prospects

The COVID-19 pandemic weighed heavily on economic growth. However, BRO continued to generate steady profits and retain its robust growth trajectory. In fact, the company achieved record revenues both in fiscal 2020 and fiscal 2021, aided by accretive acquisitions.

Source: Investor Presentation

The company’s performance sustained its strong momentum in fiscal 2022 as well.

Brown & Brown reported fourth quarter and full-year earnings on January 23rd, 2023, with results coming in better than expectations. Adjusted earnings-per-share for the quarter were 50 cents, which was four cents better than expectations. Revenue soared 22% year-over-year to $901 million, $3.4 million better than estimates.

Core commissions and fees were $865 million for the quarter, growing from $719 million in the year-ago period. Total expenses were $707 million, up sharply from $598 million in last year’s Q4. Adjusted EBITDAC, which is an alternative operating margin measure that Brown & Brown uses, was $283 million. That was up 35% year-over-year as the company’s adjusted EBITDAC margin rose from 28.5% to 31.4%

Source: Investor Presentation

The company’s growth comes mainly from strategic acquisitions throughout the years. Over the years, the company has acquired and integrated over 580 different companies.

We expect BRO to earn $2.45 per share for 2023. Also, we expect a 7% annual EPS growth over the next five years, comprised mainly of revenue growth and share buybacks.

Competitive Advantages & Recession Performance

Brown & Brown’s competitive advantage comes from its willingness to execute small and frequent acquisitions. This growth-by-acquisition strategy gives the company an enduring opportunity to continue growing its business for the foreseeable future. BRO is also modestly recession-resistant. For example, BRO’s competitive advantages allow it to maintain consistent profitability each year, even during recessions.

BRO’s earnings-per-share during the Great Recession are below:

Further, during the COVID-19 pandemic, earnings grew from $1.40 per share in 2019 to $1.67 per share in 2020. This represents an increase of 19% year-over-year.

Valuation & Expected Returns

Based on our expected EPS of $2.45 for 2023, BRO stock trades for a price-to-earnings ratio of 23.5, using today’s stock price of ~$57.5. BRO held an average price-to-earnings ratio of 22.6 over the past 10 years. Today’s multiple is modestly below our fair P/E of 24, implying shares appear somewhat undervalued at their current price levels.

If the company stock experiences an advancement in the valuation multiple to our fair P/E of 24.0, annual shareholder returns would be amplified by 0.5% annually over the next five years.

Earnings growth and dividends will positively impact future returns. First, we expect the company to grow earnings-per-share by 7% per year through 2028.

Then, BRO stock has a dividend yield of 0.8%. Putting it all together, a breakdown of our expected future returns is as follows:

In this projection, total annualized shareholder returns could reach 8.3% through 2028. This is a satisfactory expected rate of return for this company, but one that is limited by the stock’s “fair” yet rich valuation.

Final Thoughts

BRO has endured a number of challenges over the past decade, including the Great Recession of 2008-2009 and the coronavirus pandemic of 2020. And yet, it continued to raise its dividend each year. Very few companies have this ability, which makes this company a rare dividend growth stock.

BRO has a leadership position in its insurance industry and durable competitive advantages. These factors have the company positioned for growth in future years, making it highly likely that the company will continue to increase its dividend.

The company is a high-quality business and a dividend growth company, and while the stock is not necessarily overvalued, its rich multiple averts it from earning a buy rating from Sure Dividend at this time. Accordingly, we have assigned the stock a hold rating at its current price.

Additionally, the following Sure Dividend databases contain the most reliable dividend growers in our investment universe:

If you’re looking for stocks with unique dividend characteristics, consider the following Sure Dividend databases:

The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly:

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