Yahoo Finance Is Insurance Australia Group Limited (ASX:IAG) A Smart Pick For Income Investors?
Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Insurance Australia Group Limited (ASX:IAG) has been paying a dividend to shareholders. Today it yields 4.9%. Should it have a place in your portfolio? Let’s take a look at Insurance Australia Group in more detail.
View our latest analysis for Insurance Australia Group
Here’s how I find good dividend stocks
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
Is its annual yield among the top 25% of dividend-paying companies?
Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
Has it increased its dividend per share amount over the past?
Can it afford to pay the current rate of dividends from its earnings?
Will it be able to continue to payout at the current rate in the future?
How does Insurance Australia Group fare?
The current trailing twelve-month payout ratio for the stock is 85%, which means that the dividend is covered by earnings. Going forward, analysts expect IAG’s payout to remain around the same level at 79% of its earnings, which leads to a dividend yield of 5.2%. In addition to this, EPS should increase to A$0.43.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Although IAG’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Shareholders would have seen a few years of reduced payments in this time.
Compared to its peers, Insurance Australia Group has a yield of 4.9%, which is high for Insurance stocks but still below the market’s top dividend payers.
Next Steps:
Taking into account the dividend metrics, Insurance Australia Group ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three fundamental aspects you should look at:
Future Outlook: What are well-informed industry analysts predicting for IAG’s future growth? Take a look at our free research report of analyst consensus for IAG’s outlook.
Valuation: What is IAG worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether IAG is currently mispriced by the market.
Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
