There’s another one.

One of my favorite income producers just treated investors to another sizeable special dividend. This latest outlay amounted to $125 million, or $1.50 per share. This is the fifth supplemental payment in the past two years, following a trio of $2.00 special dividends and a fatter $4.00 payout.

Keep in mind, these are all on top of the ordinary dividend of $0.88 per share. Regular quarterly distributions have been climbing for 20+ consecutive years, rising from $0.50 back in 2021 — an impressive 76% cumulative increase. They provide a respectable yield of 2.8%, roughly double the S&P average.

Still, it’s the special dividends that make American Financial Group (NYSE: AFG) stand out from the crowd.

By definition, these cash payments are non-recurring. They tend to be erratic, infrequent and unpredictable. Some companies randomly hand them out once in a blue moon. In many cases, management is simply sharing the proceeds from an asset sale.

Take Ford Motor (NYSE: F). Back in 2023, the automaker divested its 90 million-share stake in EV startup Rivian, booking a windfall profit. Those holdings netted about $2 billion in gains, and management decided to divvy up the spoils with stockholders – approving a generous special dividend of $0.65 per share.

At the time, Ford had a regular quarterly distribution of $0.15 per share. So the automaker served up more than a year’s worth of dividends in one lump sum.

But AFG is different. The specialty insurer makes these “bonus” payments not every few years, but every few months. They aren’t one-off transactions, but modus operandi.

With a rich history that dates to the 1870s, AFG has grown to become one of the nation’s top commercial insurers. It issues property & casualty policies covering everything from crop protection to workers compensation. It has written $10 billion in premiums over the past 12 months alone.

Like any insurer, AFG is free to invest those premiums until claims are made, pocketing any dividends, interest and capital gains earned. The expansive portfolio of stocks and bonds generates hundreds of millions in net investment income each year. The company has also sunk $2.8 billion into alternative securities that have been earning 11% annually on average.

Core underwriting profits aren’t too shabby either. Thanks in part to a cleaner expense ratio, they shot up 40% last quarter to reach $287 million – a new record high.

Some of that cash will be deployed into acquisitions and growth initiatives. What about the rest? Well, CEO Carl Lindner couldn’t be more clear, saying the company is still sitting on “significant excess capital” and views ongoing special dividends as an “effective component of our capital return strategy.”

Aside from the five special dividends mentioned above, there have been more than a dozen others since 2021, including a whopping distribution of $14 per share in June 2021. Since then, AFG investors have been showered with $55 per share in special dividends.

No, that’s not a typo.

AFG is highly efficient, generating stellar returns on equity between 18% and 19%. And unlike some capital-intensive businesses, it doesn’t take buckets of reinvested cash to keep this machine humming smoothly. So management can afford to be generous.

Meanwhile, book value (Warren Buffett’s preferred yardstick for an insurance outfit) has grown another 17% over the past year. Let me add that AFG has also maintained a pristine “A” credit rating for more than a century, one of only four organizations to make that claim.

A rare pullback from $140 to $125 over the past six months only adds to the appeal.

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