A blue-chip stock paying a 7% fully franked dividend yield

Have investors over-reacted and punished this stock for potentially immaterial issues?

| More on:

You鈥檙e reading a free article with opinions that may differ from The Motley Fool鈥檚 Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Insurance Australia Group Limited (ASX: IAG) is a $12.6 billion insurance company, which owns several well-known brands including NRMA Insurance, CGU and SGIO, but it seems investors are giving it the cold shoulder.

IAG as the company refers to itself, today reaffirmed its guidance for Gross Written Premium (GWP) growth of 3-5% and a reported margin – a key measure of profitability for an insurer – of between 14.5% and 16.5%. IAG says it has 3.5 million customers and holds significant market shares in motor and home segments as well as compulsory thirdy party (CTP) insurance in NSW.

The company has also expanded into Asia, and recently agreed to acquire Wesfarmers Limited (ASX: WES) insurance underwriting business for $1.85 billion. The deal includes an agreement to distribute insurance products through Coles supermarkets for 10 years. Coles is following the lead set by UK retailer, Tesco, by offering more financial products. That could see more of IAG’s insurance products sold to Coles customers.

Rival Suncorp Group (ASX: SUN) says the deal will give IAG 60% of the New Zealand insurance market in some sectors, and was opposed to the deal.

IAG shares are down 7.5% over the past six months, despite a 39% jump in net profit for the six months to December 2013. Investors appear to be worried about the $1.85 billion price tag for Wesfarmers’ insurance unit, with some suggesting it was over-priced. They may also be worried, after the company said in January that it expected slower earnings growth this financial year thanks to increased competition.

Shares in IAG are currently trading at around $5.47 and the company is expected to pay a fully franked dividend of around 35-36 cents over the next two years, putting it on a dividend yield of 6.9%.

Foolish takeaway

With QBE Insurance Group (ASX: QBE) facing some major issues, particularly in the US, IAG looks to have its nose in front of its rivals in the insurance space, and with that juicy, fully franked dividend, could be a worthy addition to your portfolio.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter聽@TMFKinga

More on 鈴革笍 Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
鈴革笍 Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
鈴革笍 Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more

asx investor daydreaming about US shares
鈴革笍 How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more

person reading news on mobile phone
鈴革笍 Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more