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Stock Strategist

Risk/Reward Favors Old Republic International

We think the dividend is economically sustainable.


We believe that  Old Republic International's (ORI) dividend, currently yielding 6.7%, is sustainable on an economic basis and that management is fully committed to maintaining it. There is a low-probability threat, extraneous to business performance, that could force the multiline insurer to cut the dividend. However, even if this were to occur, we think the stock offers compelling long-term value to investors willing to endure headline risk in return for potential reward. The market is overlooking the underlying value of Old Republic's legacy insurance operations, in our opinion.

We think Old Republic has a narrow economic moat. The general insurance segment targets specialized coverage with niche characteristics, while the title insurance business has significant barriers to entry. Most insurers have to rely on investment income to produce a profit, but Old Republic has better-than-average underwriting income. However, the stock currently trades at only 0.73 times book value and 70% of our fair value estimate.

Jim Ryan does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.