ACE Limited (NYSE:ACE)

CAPS Rating: 4 out of 5

The Company and its direct and indirect subsidiaries are a global property and casualty insurance and reinsurance organization, servicing the insurance needs of commercial and individual customers in more than 140 countries and jurisdictions.

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Member Avatar notyouagain (62.64) Submitted: 10/4/2014 5:59:16 AM : Outperform Start Price: $104.97 ACE Score: +2.73

First things first. I want to spare myself the time and effort of doing reverse calculations to figure out what my initial start price was later.
Beginning start price $104.97.
I bet I stand a chance of making you like ACE. I might even get you to decide you like it a lot.
ACE has built-in advantages inherent to being in a low-capital-intensive industry that are unmatched in most others.
Oh boy. Does it ever. And I'm sorry, but to get where I want to go, I'll have to take the long way.
So before I even begin talking about ACE, I'm going to compare two other companies, tapping and recapping some of what I wrote in my pitch for MCO.

................................................IBM....................MOODY'S
Gross Margin..........................53.55%..................72.4%
Net Margin..............................17.04%..................30.16%
Asset Turnover..........................0.79......................0.70
Return On Assets.....................13.46%.................19.70%
Return On Equity......................96.36%................211.61%

Moody's makes IBM its whipping boy according to many of these metrics. Why? IBM is an outstanding company. After all, I wrote an enthusiastic pitch saying it was.
Well, for one thing, Moody's has a much lower cost of goods sold. It requires less employees to do what it does, too. Way less.
IBM employs 463,785 people and generates $211,883 in revenue per employee, of which $36,105 is net income.
Moody's employs 9,792 people that each generate $372,071 in revenue...and of that, $112,202 is net income.
So it takes over three IBM employees generating $635,649 in revenue to equal the net income generated by one employee at Moody's.
In 2013, IBM spent $4,140M on capital expenditures.
Moody's spent $42.3M on capex in 2013.

In 2013, IBM spent $6,226M on R & D.
Moody's rarely if ever has to spend money on R & D.

IBM's SG & A expenses for 2013 were $21,837M.
Moody's SG & A expenses for 2013 were $822.1M.

Some industries enjoy immense advantages simply because they have a less capital-intensive structure. They have no costs associated with manufacturing, shipping, or storing inventory. They don't have to pour buckets of money into R & D to maintain their competitive advantage. The market leaders in these types of industries rake in truckloads of money.

Enter today's subject. ACE Ltd.
Cost of sales............-0-
SG & A Expense......-0-
R & D.......................-0-
Capex......................-0-

Moody's employs 9,792 people each generating $372,071 in revenue of which $112,202 was net income while making IBM look an amateur at making money.

Now meet ACE.
ACE employs 20,000 people. ACE's revenue per employee? Oh....just $974,000....of which $171,350 is net income.

They're on a nonstop tear, too.
2010 Revenue.........$16,006M
2011 Revenue.........$16,834M
2012 Revenue.........$17,936M
2013 Revenue.........$19,261M

Stockholder's equity:
Dec 2010..........$22,974M
Dec 2011..........$24,516M
Dec 2012..........$27,531M
Dec 2013..........$28,825M
Jun 2014...........$30,325M

Between Sep 2013 and Jun 2014 ACE repurchased 3.84M shares of its own stock.
In Oct 2004 the quarterly dividend payout was $0.21/ share.
This month's quarterly dividend payout is $0.65.

It has more than tripled in ten years and still has a payout ratio of only 23%.
SO...with an annual dividend of $2.60/share, a dividend yield of 2.5%, a payout ratio of 23%, growing like a weed, and its status as one of the leaders in an industry that enjoys the advantages that it does, make it seem just a little irrational that its for sale with a PE of only 10.47 and a PEG of 1.15.

This company has been paying dividends since 1993 and has been growing just...like...this...ever since.
You'll find they aren't given credit for their long, rapid dividend growth....because they apparently caved in to pressure at the end of 2012 and paid a fifth dividend payout that year that went ex-dividend on Dec 28 of that year....remember? Everyone was scared their taxes were about to jump higher, and some companies moved their first dividend payments for the following year up to be paid in Dec?
Anyway, companies that did this flushed their dividend growth records down the toilet...since ACE moved its first quarterly payment up to Dec, it only shows three payments actually made in 2013.
So when you go to some site such as Dividendinvestor.com, now it's listed as having zero years of consecutive dividend growth when it's actually been growing for two decades.
A little digging was all it took. This is a gem.
And here is a great article going into more detail about what makes this a great company.....

http://www.fool.com/investing/general/2014/05/18/which-insurer-is-the-better-buy-american-internati.aspx?source=itxsitmot0000001&lidx=8

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Member Avatar afewgoodstocks14 (27.29) Submitted: 9/30/2014 1:16:10 PM : Outperform Start Price: $106.59 ACE Score: +3.37

Div. (Yield) $2.60 (2.5%)

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Member Avatar cavrad (47.69) Submitted: 8/24/2014 7:56:39 PM : Outperform Start Price: $104.52 ACE Score: +5.12

Eddy Elfenbein short list of well run companies.

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Member Avatar fairlyreliable (49.19) Submitted: 5/6/2014 1:20:31 AM : Outperform Start Price: $100.73 ACE Score: +2.70

Boring insurance dividend

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Member Avatar mrbill6 (< 20) Submitted: 2/3/2014 11:58:12 AM : Outperform Start Price: $90.79 ACE Score: +6.49

SuperStockScreener Strong Buy

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Member Avatar amwhite6 (55.48) Submitted: 9/17/2013 3:24:22 PM : Outperform Start Price: $89.76 ACE Score: +5.39

Changing My Caps to Reflect my investing strategy. I start with a simple screener trying to find undervalued dividend paying stocks. Then because I want to invest in things I understand I eliminate any businesses I have not heard of or in areas I lack knowledge ( Financials, Precious Metals). After that I check the Caps Rating and it gets a thumbs up if it is rated 4 stars or higher. Very few 3 star companies will get a thumbs up but occasionally i will go out on a limb with one.

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Member Avatar JorgeAura (< 20) Submitted: 2/2/2013 5:45:32 PM : Underperform Start Price: $81.50 ACE Score: -1.82

sp500 in maximums.

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Member Avatar XMFTheGuruEbby (85.36) Submitted: 8/21/2012 3:12:08 PM : Outperform Start Price: $69.80 ACE Score: +16.74

ACE Ltd. has some room to grow based on its Graham number. Read my full write-up here: http://bit.ly/NeU8Qn

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Member Avatar Tony007x (< 20) Submitted: 9/24/2011 3:20:58 AM : Outperform Start Price: $55.79 ACE Score: +21.93

High dividen yield, good annual return

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Member Avatar BCfunddude (93.50) Submitted: 5/24/2011 4:32:06 PM : Outperform Start Price: $62.32 ACE Score: +24.34

An investor has purchased of 2,500 November 70 calls for an average premium of $2.96 and the sale of an equal number of November 62.50 puts for $2.18. This guy is in for a rude awakening if shares tumble between now and expiration of his options...but I'm willing to follow his hunch.

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Member Avatar truthisntstupid (91.77) Submitted: 12/18/2010 10:19:23 PM : Outperform Start Price: $56.19 ACE Score: +34.18

I was looking for the ticker for Ace Hardware and this popped up.
CAPS description says, "...global property casualty insurance and reinsurance organization, servicing the insurance needs of commercial and individual customers in more than 140 countries and jurisdictions."
So I thought I'd look at what Morningstar had to say about it.
"Morningstar's Take", from Morningstar.com:
"ACE was originally established by a group of Fortune 500 companies seeking to transfer excess insurance risks that the market often avoided. This business model is still present today, as ACE assumes some of the biggest risks for large corporate customers. Over time, it has built a truly global footprint to better serve these valued accounts. We think its international network endows ACE with a narrow economic moat."
That's from Morningstar.com - the "moat" people.
So I thought it deserved a closer look.
Oh, no! Today's price is only 5% or so off the 5-year high - which also, by the way, is the 10-year high!
This can't be good.
But when I look at a company's stock, I look at the company first. Not just the price. Never judge a book by its cover.
I'm a dividend guy. But before we consider the dividend growth potential of this company, we need to look at all the reasons why I think this company may be in the very early stages of becoming what may be a dividend juggernaut in years to come.
First, the price. Forget about the price in dollars right now. Prices of shares aren't measured in dollars.
The current P/E is 6.8.
The 5-year average P/E is 10.9.
The 5-year high P/E is 19.3.
The 5-year high P/E was set in Sep of 2008, when the stock reached a 5-and-10-year high of $68. If you divide $68 by the earnings that year of $3.53, you get 19.26 as the 5-year high P/E - it's rounded to 19.3 on our CAPS "ratios" page.
At Morningstar.com, I see that the consensus opinion of 20 analysts rates it a pretty strong buy, giving it a rating of 1.2, with a rating of 2 being a hold, and a rating of 1 being a strong buy.
This in spite of its current price and the fact that it's only 5% or so off a 10-year high?
What are they seeing?
Maybe this:
It has a PEG of 0.7.
How about return on equity? Better yet, how about breaking return on equity down into its 3 separate components?
Return on equity is FINANCIAL LEVERAGE X ASSET TURNOVER X NET MARGIN. The last two multiplied together, asset turnover X net margin, are what we are talking about when we are looking at RETURN ON ASSETS. RETURN ON ASSETS is pretty much what return on equity would be in the absence of financial leverage,
Let's break it down:
FINANCIAL LEVERAGE
Assets/Equity = 3.61. It sounds pretty high to me, but maybe companies in this industry tend to carry more leverage. One thing I can see, looking at this number for ACE over the last 10 years: this number is not only considerably lower than its average over that time, but is at a 10-year low. Typically a decrease in this number would result in a decrease in return on equity.
But its trailing 12 months' return on equity beats the return on equity 6 out of the last 10 years when financial leverage was considerably higher.
ASSET TURNOVER
Revenue/Assets = $0.20. This is the amount of revenue generated for each dollar of assets. This figure is pretty average for ACE over the last 10 years, and many years were actually 2 or 3 cents higher.
That leaves only 1 factor remaining to explain why RETURN ON ASSETS is at a 10-year high of 3.82 - considerably higher than its past average. And that would have to be
NET MARGIN
Net Income/Revenues = 19.28%. Net margin represents the % of revenues that are profit. This is also a 10-year high. Only 1 year out of the last 10 came within a percentage point of this. 1 other year out of the last 10 came within 2 percentage points of this. Most of the last 10 year the net margin was nowhere close to what it is now.
So what we're seeing here is that despite considerable deleveraging, return on assets and net margin are at 10-year highs, driving return on equity higher than 7 out of the last 10 years.
DEBT/EQUITY, at 0.15, has only been lower 2 out of the last 10 years.
TOTAL LIABILITIES are at a 10-year low.
Interest coverage is 17.9.
SHARES OUTSTANDING are down to340M from 403M in 2002.
REVENUE was $ 5.267B in 2000.
REVENUE was $15.075B in 2009.
REVENUE was $15.869B in the trailing 12 months.
Just look what I accidentally found while looking for Ace Hardware! I think I like it!
Now, about those dividends....
The current dividend yield is 2.1%, and the 5-year average dividend yield is 1.8%.
The payout ratio is, according to CAPS and Morningstar.com, 7%.
Yeah. Seven percent.
Our CAPS "ratios" page shows a negative 13.15% 5-year dividend growth rate.
I've looked at its dividend payment history at Morningstar.com and at dividendinvestor.com, and I'm not seeing that.
This dividend is one that grows. They started paying dividends in Oct 2008 at $0.26.
In Jan 2009 they raised it to $0.27.
They lowered the Apr 2009 quarterly dividend payment from $0.27 back down to $0.26 - one penny - and in Aug 2009 they raised it back up again, this time to $0.31.
This Aug they raised it again - to $0.33.
According to dividendinvestor.com, they've been paying dividends since 2008.
Considering their growth, their excellent financial condition, the fact that their dividend yield is 2.1% at a payout ratio of 7% - what might a person's yield on cost be in 5 or 10 years? This might be a chance to get in early enough to be a shareholder in a company that does THIS:
http://caps.fool.com/Blogs/dividend-growth-time-and/346141

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Member Avatar mrcarlen (< 20) Submitted: 11/16/2010 3:10:05 PM : Outperform Start Price: $53.45 ACE Score: +34.73

High productivity

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Member Avatar SorosTracking (38.97) Submitted: 2/22/2010 7:39:21 AM : Outperform Start Price: $44.92 ACE Score: +63.55

1,496,150 owned
- Q409 13F - Soros Fund Management LLC

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Member Avatar XMFCams (< 20) Submitted: 1/6/2010 5:37:49 PM : Underperform Start Price: $42.58 ACE Score: -79.59

slow mover

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Member Avatar LngTrmVw (82.98) Submitted: 5/4/2009 12:04:22 AM : Outperform Start Price: $40.54 ACE Score: +41.72

the change in earnings over each of the last four quarters and the current quarter estimate shows strong acceleration in the quarterly growth rates, which should lead to a improvement in earnings growth.

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Member Avatar Afropuffashion (< 20) Submitted: 3/5/2009 12:37:45 PM : Underperform Start Price: $28.01 ACE Score: -96.66

Property insurance will suffer as home values decrease

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Member Avatar 2FOOLME2 (21.71) Submitted: 12/9/2008 10:51:05 AM : Underperform Start Price: $42.65 ACE Score: -33.57

In trouble nationwide

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Member Avatar wbcookiii (< 20) Submitted: 10/12/2008 9:42:29 PM : Outperform Start Price: $36.46 ACE Score: +81.90

Well secured, minimal life insurance, conservative investment strategy, global revenue source.

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Member Avatar phgga (< 20) Submitted: 5/31/2008 9:38:28 AM : Outperform Start Price: $51.14 ACE Score: +64.72

not beat down as rest of sector and great p/e

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Member Avatar davixita (55.22) Submitted: 5/22/2008 10:18:45 AM : Outperform Start Price: $50.69 ACE Score: +66.38

At this price it is a bargain!!! Low p/e and a ver very low payout will gave you satisfaction!!!!!!!!!

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