Homeowners Choice, Inc. – common or prefered?

Homeowners Choice Inc (HCII) is a property and casualty insurance holding company.

The current market cap is around 40M$ or 50% of net current assets!  They are available under 2 different shares : the prefered 10$ convertible 7% dividend shares or the common voting shares with a 0.10 quarterly dividend (0.40$ yearly).

Let’s first look at the prefered shares.  After the historical 2 day drops in US exchange, these are sold at 7.77 for an annual return of 9%.  The only question we got to ask ourself when buying prefered shares are the following : is there a risk the company stops paying the dividend or goes bankrupt?  Homeowners Choice currently have over 80M$ in cash.  The actual prefered share dividend is around 380k per quarter or 1.1M$ per year.  The net income of HCII is 2.3M per quarter before preferred shares dividend payout.  The risk of default is about null.  One quarter profit could pay preferred shares dividend for 2 years.  Only with current cash balance we could survive for 80 years…   9% annual return with no risk.  I do like the preferred.

Let’s now look at the common shares.  They are very close to their year-low (5.60) after the last 2 days drop to 6.5$.  This company dividend yield is at 6%.  No possibility of default on this insurance company, there is no bank debt.

I’ll make a detailed blog analysis on HCII common shares soon.  Until then I’ll try to acquire shares of HCIIP under 8$ (by the time I finished this blog, shares were back over 9$).  I’ve initiated a position in HCII that I’ll convert to HCIIP is they drop under 8$ or after my complete blog on this company.

Disclosure : Author has a position in HCII and hopes to transfer position in shares of HCIIP.

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Posted in HCII

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