Dividend Growth Investing: AFG's 20-Year Streak and 12.3% CAGR Signal Long-Term Value for Income Investors

Dividend growth investing has long been a cornerstone strategy for income-focused investors seeking compounding returns and resilience through market cycles. At the heart of this approach lies the search for companies that not only maintain but consistently increase their payouts. American Financial Group (AFG) stands out as a rare gem in this space, having just celebrated its 20th consecutive year of dividend increases in 2025. With a 12.3% ten-year compound annual growth rate (CAGR) in dividends and a strategic position in the insurance sector, AFG offers a compelling case for inclusion in high-quality dividend growth portfolios.

A Track Record of Resilience and Growth

AFG's ability to raise dividends for two decades is no accident. The company's latest 10% increase in 2025—raising the annual payout to $3.52 per share—demonstrates its unwavering commitment to shareholder returns. This streak, combined with a 12.3% CAGR over the past decade, underscores AFG's financial discipline and operational strength. For context, the S&P 500's average dividend growth rate for the same period is significantly lower, highlighting AFG's exceptional performance.

The key to AFG's success lies in its prudent capital management. The company maintains a payout ratio of 33.9%, ensuring it retains enough earnings to reinvest in growth while still rewarding shareholders. This balance is critical for sustaining long-term dividend growth, especially in a sector as cyclical as insurance. AFG's dividend cover of 2.0—meaning earnings can cover the dividend payout twice over—provides a buffer against economic downturns, further solidifying its dividend safety.

Strategic Positioning in the Insurance Sector

AFG's dominance in the insurance sector is a major driver of its dividend prowess. As a diversified holding company with a focus on property and casualty insurance, AFG has consistently generated strong underwriting profits and investment returns. Its ability to navigate economic cycles—whether through disciplined risk management or strategic acquisitions—has allowed it to maintain profitability even during periods of market stress.

The insurance sector itself is a double-edged sword: while it can be volatile, companies like AFG that prioritize capital preservation and consistent cash flow often outperform. AFG's moderate leverage (adjusted financial leverage of ~20%) and strong balance sheet further insulate it from sector-specific risks. This stability is reflected in its 2.4% dividend yield, which, while modest compared to high-yield stocks, is far more sustainable and attractive when paired with its robust growth trajectory.

Beyond Regular Dividends: Special Distributions and Share Repurchases

What truly sets AFG apart is its willingness to go above and beyond for shareholders. In recent years, the company has distributed special dividends of up to $400 per share, reflecting its confidence in excess capital. These one-time payouts, combined with share repurchases, have amplified total returns. For example, in 2024 alone, AFG returned $791 million to shareholders through a mix of dividends and buybacks. This aggressive capital return strategy not only boosts shareholder value but also signals management's conviction in the company's long-term prospects.

Why AFG Belongs in a Dividend Growth Portfolio

For income-focused investors, AFG offers a rare combination of growth, stability, and strategic capital allocation. Its 12.3% CAGR over the past decade is a testament to its ability to compound value, while its 20-year streak of increases provides a track record of reliability. The insurance sector's inherent volatility is mitigated by AFG's disciplined approach, making it a defensive yet growth-oriented holding.

Moreover, AFG's dividend yield of 2.4%—well above the industry average of 0.3%—positions it as a standout in a low-yield environment. While the yield may not be as eye-catching as some high-yield stocks, the combination of growth and income makes it a more sustainable choice for long-term investors.

Final Thoughts: A Core Holding for the Future

As markets continue to grapple with uncertainty, companies like AFG that prioritize consistent growth and shareholder returns will remain in high demand. The recent 10% dividend increase and 12.3% CAGR are not just numbers—they represent a company that has mastered the art of balancing reinvestment with reward. For investors seeking a core holding in a high-quality dividend growth portfolio, AFG's 20-year streak and strategic positioning make it a compelling candidate.

In a world where many companies struggle to maintain even a single year of dividend growth, AFG's two-decade run is a masterclass in financial stewardship. As the company continues to navigate the insurance sector's challenges with agility, its commitment to dividend growth ensures that it remains a beacon for income-focused investors.