Rock solid?

Prudential Financial (NYSE: PRU) cares so much about having a solid foundation that it uses the Rock of Gibraltar as its corporate logo. That foundation is provided by a balance sheet with over $400 billion in bonds and $21 billion in cash and equivalents, and a net equity position above $65 billion. In insurance terms, that means a lot can go wrong above and beyond what it’s planning for, and the company would still end up OK. Like most insurers, Prudential makes its money from pricing risk. Ideally, inflows from premiums should at least equal outflows from policy claims. If not, the equity on its balance sheet can cover unexpected costs. The COVID-19 pandemic has heightened uncertainty, but Prudential’s balance sheet should allow it to survive long enough to understand the new risks and price future policies accordingly. In the meantime, Prudential’s shares have dropped substantially this year due to the near-term risks it faces. That share price drop has pushed up the dividend yield recently to a whopping 6.8 percent. Pre-pandemic, dividend payments took up only about 60 percent of the company’s trailing earnings, leaving room for future dividend growth. In August, management reported, “We remain on track to achieve our targeted $140 million of cost savings for the year and are making progress in transitioning our international earnings base to higher-growth markets.” Prudential deserves a closer look from income-seeking investors.