Principal Financial Group, Inc. PFG is well-poised to gain from strategic buyouts, strong retention, higher single premium annuity sales, effective capital deployment, positive net cash flow and financial stability.

Principal Financial’s revenue growth is expected to improve in the long run, riding on higher premiums and other considerations, fees and other revenues, and improved net investment income across its segments. 

The Principal International segment is likely to benefit from higher single-premium annuity sales in Chile. The segment’s operating earnings should gain from foreign currency tailwinds.

The Specialty Benefits Insurance business should continue to gain from record sales, strong retention and employment growth. Growth in the business, favorable claims and disciplined expense management should benefit its pre-tax operating earnings.

Strong institutional flows across equities, real estate and specialty fixed income, highlighting the value of diversified distribution through its institutional, retail and retirement channels, are likely to drive positive net cash flow.  

Principal Financial’s extensive distribution footprint, strategic buyouts and operational discipline should enhance the assets under management growth.
Principal Financial boasts a strong capital position, with sufficient cash generation capabilities and liquidity. To reflect the business mix and risk profile, PFG lowered the target RBC level from the previous 400% to a range of 375-400%. For 2024, PFG remains well-positioned to deliver on enterprise long-term financial targets, with 9% to 12% growth in earnings per share and 75% to 85% free capital flow conversion.

Capital Deployment

Principal Financial’s wealth distribution through share buybacks and dividend payments looks impressive. Its continuous dividend hikes, aligned with the targeted 40% dividend payout ratio, demonstrate confidence in continued growth and overall performance. The company continues to expect to deliver on the targeted 75-85% free capital flow for 2024.

PFG returned more than $415 million of capital to shareholders in the second quarter of 2024, including $250 million of share repurchases. It remains committed to returning excess capital to shareholders and continues to expect $1.5-$1.8 billion of capital deployment for 2024, including $800 million to $1.1 billion of share repurchases. Based on net income, excluding exited business, the company targets 35-45% share repurchases in 2024.

Risk

However, Principal Financial’s expenses have been increasing since 2013 due to a rise in benefits, claims and settlement expenses, as well as operating expenses. An increase in expenses weighs on its margins. Net margin contracted 280 basis points to 8.1% in the second quarter of 2024.