My second purchase yesterday was averaging down on my shares of TWGP.
Many of you know about the storm that has ravaged the northeast recently. Well, Tower Group’s business is primarily in the northeast so their stock price has taken a beating. I have been trying to decide if I should average down on Tower Group or even sell the shares I have.
After reading through their 8-k report they filed Oct. 29 that discloses their reinsurance coverage, that can be found here: http://investor.twrgrp.com/sec.cfm , It looks as though they could lose around 90 million from this storm. This is about 10% of their market cap. The stock has already dropped about 10% since the news of the storm has hit so I think most of the damage is priced in.
I didn’t add a large position but I did add 59 shares of TWGP at 17.36 which was near the daily low. This knocked my average cost to around $19.
Tower Group is a Dividend Challenger, having raised their dividend for 5 straight years. Their current status is in jeopardy though if they don’t raise their dividend by the end of next year. The company has not increased their dividend since June 24, 2011. Shares are currently yielding 4.25%.
I’ve decided I will give TWGP until the end of next year to raise their dividend and if they don’t I will likely sell my shares. Upon further weakness I might average down again. Given their smaller market cap and smaller dividend streak TWGP could be considered a speculative dividend growth play. Hopefully things will work out and five years from now I will look back and realize I got in at a good price.