Principal Financial Group: A Dividend Growth Gem Amid Market Headwinds

Principal Financial Group (PFG) has quietly emerged as a compelling dividend growth opportunity, offering investors a mix of robust earnings momentum, shareholder-friendly capital returns, and a valuation discount relative to its peers. While the company's stock has faced near-term volatility—particularly in 2023 and early 2024—the data suggests a contrarian case is building for long-term gains. Let's unpack why PFG stands out in an uncertain market.

Earnings Resilience Amid Volatility

PFG's earnings trajectory has been uneven but ultimately upward. Over the past five years, the company's diluted EPS grew from $5.05 in 2020 to $6.68 in 2024, a 32% increase despite a sharp dip in 2023 (-86% decline). The 2024 rebound was driven by strong performance in its Retirement and Income Solutions (RIS) segment, where recurring deposits rose 7% and transfer deposits jumped 57% year-over-year. Meanwhile, the Investment Management segment saw AUM grow to $559 billion, fueled by record retirement sales. Even in challenging quarters—such as Q3 2024, when EPS dropped 114% due to foreign exchange headwinds—the company maintained its long-term focus on high-growth markets and capital efficiency.

Dividend Growth and Capital Returns: A Consistent Story

PFG's shareholder returns strategy is a standout feature. In early 2025, the company raised its dividend by 9%, marking the 15th consecutive year of increases. With a current yield of 3.68%, PFG offers a solid income play. Additionally, the company has prioritized buybacks, returning $1.7 billion to shareholders in 2024—including a new $1.5 billion authorization in early 2025. This commitment to capital returns is underpinned by a strong balance sheet: PFG maintains a $1.6 billion excess capital buffer and a statutory risk-based capital (RBC) ratio of 404%, well above regulatory minimums.

Undervaluation: A 40% Discount to Intrinsic Value

PFG trades at a 40% discount to its intrinsic value of $127.43, based on current metrics. While its P/E ratio appears negative due to one-off 2023 losses, its P/B ratio of 1.68 and P/S ratio of 1.25 are both below the sector average. When compared to peers:
- MetLife (MET) trades at a 49% discount to its intrinsic value, but with a riskier volatility profile (beta of 1.20 vs. PFG's 1.05).
- Prudential (PUK) boasts a healthier 8.11 P/E ratio but yields only 2.8%, lagging PFG's dividend appeal.

Near-Term Risks: Manageable, Not Insurmountable

Critics will point to PFG's struggles in its International Pension segment, which dragged down 2023 results. However, management has already taken steps to stabilize this division, including cost cuts and asset reallocation. Meanwhile, the company's free cash flow conversion target of 75-85% and its focus on high-margin Specialty Benefits (where the loss ratio dropped to 56.5% in Q4 2024) suggest durability. The risks are real but not existential.

The Contrarian Play: Buy the Dip

PFG's stock has underperformed in 2025, down 12% YTD as markets digest its Q3 earnings miss and macro uncertainty. Yet this pullback creates an entry point for investors willing to look beyond short-term noise. With a 9-12% annual EPS growth target for 2025, a 14-16% ROE, and $1.4–$1.7 billion in capital returns planned, PFG is positioned to outperform peers over the next three years.

Investment Takeaway

Principal Financial Group offers a rare combination: dividend growth, capital strength, and a valuation discount in an industry often seen as defensive. While volatility remains, the data supports a buy-and-hold strategy for investors with a 3-5 year horizon. With a dividend yield above 3.5% and intrinsic value support, PFG is a contrarian's dream—a stock to accumulate on dips.

Final Note: Always consider your risk tolerance and consult a financial advisor before making investment decisions.