American Financial Group Lifted Its Dividend 10.2% and Kept Buying Back Stock

American Financial Group (NYSE: AFG) is an $11 billion market cap property and casualty insurer. It has an impressive 21-year streak of annual dividend increases. And the last dividend hike, announced in Aug. 2026, was a huge 10.2%. Add in a well-above-market dividend yield of nearly 2.5%, and there's good reason for dividend growth investors to do a deep dive here. But there's another piece to the story: stock buybacks.

American Financial Group is doing well

A key metric for property and casualty insurers is the combined ratio. This metric compares the company's costs (expenses and claims) to the premiums it earns. A number under 100% means that a company is making a profit. The lower the percentage, the better. American Financial Group's combined ratio in the second quarter of 2026 was 91.6%. But the real story is that it improved from 93.1% in the same quarter of 2025. Things are going well for the company.

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However, according to industry watcher Marsh, the property and casualty industry is getting more competitive. After a strong period, companies are increasingly competing on price, with property rates falling 12% in the second quarter, more than offsetting a 2% increase in casualty rates. This is why it is notable that American Financial Group continued to buy back stock in the second quarter.

The $26 million stock buyback in the second quarter adds to the $60 million it bought in the first quarter, bringing the year-to-date total to $86 million. Buying back shares helps support earnings because earnings are spread over fewer shares. Notably, while the company's combined ratio was lower year over year in the second quarter, it was higher sequentially from the first quarter's 90.4%. Preparing now for increasing competition could be a good move.

A reasonably priced dividend growth stock

American Financial Group's dividend has been growing at an attractive rate, which often leads investors to award a stock a premium price. However, the insurance company's price-to-book and price-to-sales ratios are roughly in line with their five-year averages. The price-to-earnings ratio, meanwhile, is only slightly above its longer-term average. The stock looks reasonably priced, historically speaking.

While value-conscious investors probably won't find American Financial Group attractive right now, dividend growth investors may still want to take a look. And the stock buybacks are notable because they could help protect earnings as industry competition heats up.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.