Critical Review: American Financial Group (NYSE:AFG) & Essent Group (NYSE:ESNT)

American Financial Group (NYSE:AFG) and Essent Group (NYSE:ESNT) are both finance companies, but which is the superior business? We will contrast the two companies based on the strength of their dividends, analyst recommendations, institutional ownership, risk, profitability, earnings and valuation.

Dividends

American Financial Group pays an annual dividend of $3.52 per share and has a dividend yield of 2.8%. Essent Group pays an annual dividend of $1.40 per share and has a dividend yield of 2.5%. American Financial Group pays out 35.0% of its earnings in the form of a dividend. Essent Group pays out 20.3% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. American Financial Group has raised its dividend for 19 consecutive years and Essent Group has raised its dividend for 6 consecutive years. American Financial Group is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares American Financial Group and Essent Group’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
American Financial Group	10.30%	18.64%	2.70%
Essent Group	54.72%	12.09%	9.45%

Analyst Recommendations

This is a breakdown of recent ratings and price targets for American Financial Group and Essent Group, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
American Financial Group	0	3	2	0	2.40
Essent Group	0	6	5	0	2.45

American Financial Group currently has a consensus price target of $141.25, indicating a potential upside of 13.64%. Essent Group has a consensus price target of $68.43, indicating a potential upside of 19.80%. Given Essent Group’s stronger consensus rating and higher possible upside, analysts clearly believe Essent Group is more favorable than American Financial Group.

Volatility and Risk

American Financial Group has a beta of 0.69, suggesting that its share price is 31% less volatile than the S&P 500. Comparatively, Essent Group has a beta of 0.91, suggesting that its share price is 9% less volatile than the S&P 500.

Insider and Institutional Ownership

64.4% of American Financial Group shares are held by institutional investors. Comparatively, 93.0% of Essent Group shares are held by institutional investors. 17.4% of American Financial Group shares are held by company insiders. Comparatively, 2.9% of Essent Group shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Valuation and Earnings

This table compares American Financial Group and Essent Group”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
American Financial Group	$8.17 billion	1.27	$842.00 million	$10.07	12.34
Essent Group	$1.26 billion	4.28	$689.97 million	$6.89	8.29

American Financial Group has higher revenue and earnings than Essent Group. Essent Group is trading at a lower price-to-earnings ratio than American Financial Group, indicating that it is currently the more affordable of the two stocks.

Summary

Essent Group beats American Financial Group on 9 of the 17 factors compared between the two stocks.

About American Financial Group

American Financial Group, Inc., an insurance holding company, provides specialty property and casualty insurance products in the United States. The company offers property and transportation insurance products, such as physical damage and liability coverage for buses and trucks, inland and ocean marine, agricultural-related products, and other commercial property and specialty transportation coverages; specialty casualty insurance, including primarily excess and surplus, executive and professional liability, general liability, umbrella and excess liability, and specialty coverage in targeted markets, as well as customized programs for small to mid-sized businesses and workers’ compensation insurance; and specialty financial insurance products comprising risk management insurance programs for lending and leasing institutions, fidelity and surety products, and trade credit insurance. It sells its property and casualty insurance products through independent insurance agents and brokers. The company was founded in 1872 and is headquartered in Cincinnati, Ohio.

About Essent Group

Essent Group Ltd., through its subsidiaries, provides private mortgage insurance and reinsurance for mortgages secured by residential properties located in the United States. Its mortgage insurance products include primary, pool, and master policy. The company also provides information technology maintenance and development services; customer support-related services; underwriting consulting; and contract underwriting services, as well as risk management products and title insurance and settlement services. It serves the originators of residential mortgage loans, such as regulated depository institutions, mortgage banks, credit unions, and other lenders. Essent Group Ltd. was incorporated in 2008 and is based in Hamilton, Bermuda.