American International Group (AIG) stock tanked 9% on Wednesday, February 15, after posting a huge $3 billion net loss for the fourth quarter.
This was due mostly to a massive $5.6 billion charge to cover future claims.
AIG was nearly ruined by the financial crisis. But it has slowly brought itself back from the brink.
It even resumed paying a dividend. After suspending its shareholder payout during the Great Recession, the company started paying dividends again in 2013.
And, the company has significantly grown its dividend since then. The quarterly dividend has grown from $0.10 per share in September 2013, to $0.32 per share for its most recent payout.
While AIG has a long way to go before it becomes a Dividend Achiever—you can see the full Dividend Achievers List here—it is well on its way.
Plus, the recent share price dip could give value investors a buying opportunity.
Business Overview
Any time a company loses $3 billion in a single quarter, investors are right to be nervous. However, long-term investors have reason to see beyond the short-term challenges.
The huge loss stems from AIG’s approximately $10.2 billion payment to a unit of Warren Buffett’s Berkshire Hathaway (BRK-B) in January 2016.
Under the deal, Berkshire will absorb significant long-term risks pertaining to U.S. policies that AIG had previously written.
Source:Â 4Q Earnings Presentation, page 7
While the move caused a huge up-front expense for AIG, the trade-off is that the deal meaningfully reduces its long-term reserve risks from these policies.
AIG is now only 20% exposed to the reserve risk from its legacy commercial policies.
At the end of 2016, AIG’s legacy portfolio accounted for 18% of shareholder equity, down from 24% at year-end 2015.
Source:Â 4Q Earnings Presentation, page 14
It now has $6.7 billion of legacy investments remaining on the books, compared with $10.2 billion at the beginning of the year.
