Is QBE Insurance Group Ltd’s 9.3% yield too good to be true?

After being a star performer for much of 2015, global insurance company QBE Insurance Group Ltd (ASX: QBE) has underperformed the ASX200 by more than 13% over the last three months.

Lower Price = Higher Dividend

This undesirable performance (for current shareholders) has prompted investors to take a second (or third, or fourth) look at the company, as its forecast dividend yield has increased to 6.5% fully franked or a huge 9.3% grossed up!

The big question now, is whether the share price has been battered in preparation for some bad news in this month’s full-year report, or whether the market has over estimated the damage that recent natural disasters in the US and Australia will have on QBE’s performance.

The Big Day

February 23 is the day we’ll all find out. If QBE can hit its (conservative) targets that it laid down 12 months ago, I believe the share price will end the month significantly higher than it started. Hitting management-generated targets has been QBE’s weakness for many years so shareholders will remain wary leading up to results releases.

If it doesn’t hit its targets? There’s only one way it’ll go.

Results Guide

Here’s what you should look for on Feb 23:

  • gross written premium (GWP) between US$15.5bn and US$15.9bn,
  • net earned premium (NEP) between US$12.6bn and US$13.0bn,
  • a combined operating ratio (COR) between 94% and 95%, and
  • an insurance profit margin of between 8.5% and 10%.

For the individual investor, that means:

  • Earning per share around 90 cents
  • Full year dividend per share around 45 cents (with upside possible)

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Motley Fool contributor Andrew Mudie owns shares of QBE Insurance Group Ltd. You can find Andrew on Twitter @andrewmudie 

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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