American Financial Group's 20th Consecutive Dividend Hike: A Testament to Financial Strength and Shareholder Commitment

American Financial Group (AFG) has once again proven its mettle as a stalwart of the mature insurance sector, announcing its 20th consecutive annual dividend increase in 2025. For income-focused investors, this milestone is more than a ceremonial achievement—it's a signal of the company's enduring financial discipline, operational resilience, and unwavering commitment to shareholder returns. But in a world where many high-yield stocks falter under macroeconomic headwinds, does AFG's dividend growth story still hold legs? Let's dissect the numbers and strategy behind this insurance giant's latest payout.

The Dividend Hike: A Product of Conservative Capital Management

AFG's Q2 2025 results, while showing a 19% decline in core net operating earnings year-over-year, still generated a 15.5% return on equity (ROE) from core operations. This metric, though down from 18.5% in 2024, remains robust for a mature insurer. The company's ability to maintain a debt-to-equity ratio of 0.33 (as of June 30, 2025) further underscores its conservative capital structure. With $4.5 billion in shareholders' equity and $1.5 billion in long-term debt, AFG's balance sheet is a fortress, providing ample cushion to sustain its $0.80-per-share dividend (a 4.7% increase from 2024).

The dividend hike was funded by a combination of organic earnings growth and capital returns. AFG returned $107 million to shareholders in Q2 2025, including $39 million in share repurchases. This aligns with the company's long-standing strategy of deploying excess capital to its core businesses while prioritizing shareholder value. The 4.7% growth in book value per share plus dividends for the quarter highlights AFG's ability to compound value even in a challenging environment.

Sustainability in a Low-Growth Sector

The insurance sector, particularly property and casualty (P&C) lines, is inherently cyclical and capital-intensive. AFG's Q2 2025 P&C operations reported a 93.1% combined ratio (up from 90.5% in 2024), reflecting higher catastrophe losses and less favorable prior-year reserve development. Yet, the company's 15.5% core ROE—well above the industry average—demonstrates its ability to generate returns even in a soft market.

AFG's dividend sustainability hinges on two pillars:
1. Disciplined Underwriting: The company's focus on specialty lines (e.g., financial, casualty, and transportation) allows it to avoid commoditized markets. For instance, its Specialty Financial Group saw underwriting profits rise to $38 million in Q2 2025, up from $25 million in 2024.
2. High-Quality Investment Portfolio: AFG's fixed-maturity portfolio is 95% investment-grade, with 96% of P&C assets rated in the top two NAIC categories. This minimizes credit risk and ensures stable investment income, even as alternative investments (which returned 1.2% in Q2 2025) lag.

Long-Term Total Return Potential

For income investors, AFG's 4.7% yield (as of August 2025) is attractive, but the real allure lies in its total return potential. The company's book value growth—8.6% year-to-date in 2025—suggests a compounding engine that could outpace many peers. AFG's management has also signaled intent to deploy excess capital into organic growth initiatives and strategic acquisitions, which could unlock further value.

However, risks persist. The decline in alternative investment returns (from 5.1% in 2024 to 1.2% in 2025) and the P&C combined ratio's rise to 93.1% highlight vulnerabilities in a low-interest-rate environment. Additionally, AFG's leverage ratio of 9.11 (total liabilities to equity) is higher than some peers, though its strong liquidity position and low debt levels mitigate this concern.

Investment Thesis: A High-Quality Income Play

AFG's 20th consecutive dividend hike is a testament to its operational excellence and shareholder-centric culture. While the insurance sector is mature, AFG's niche focus on specialty lines, conservative capital structure, and disciplined underwriting position it as a rare high-quality income stock. For investors seeking a dividend growth engine with downside protection, AFG offers a compelling case.

Key Takeaways for Investors:
- Buy for Income: AFG's 4.7% yield and 20-year dividend growth streak make it a reliable income source.
- Hold for Stability: The company's low leverage and high-quality assets provide resilience during economic downturns.
- Watch for Catalysts: Strategic acquisitions or rate increases in specialty lines could drive earnings and dividend growth.

In a market where many high-yield stocks are overleveraged or overextended, AFG's blend of financial strength, operational discipline, and shareholder returns stands out. For long-term investors, this is a stock that rewards patience—and history suggests it will continue to do so for years to come.