3 reasons to hang onto your Insurance Australia Group shares

Why shareholders won’t want to sell their Insurance Australia Group shares anytime soon

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It’s a funny old day on the ASX today, with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) lurching back and forth between positive and negative territory.

As I write, the index is up just 0.1%, with QBE Insurance Group Ltd (ASX: QBE) up 2.6% and Telstra Corporation Ltd (ASX: TLS) with a gain of 0.7% leading the way amongst the large caps. Insurance Australia Group Limited (ASX: IAG) is down 0.4% at $5.73 for the day, not much different from its performance over the past 12 months, where the insurer has picked up a gain of just 0.5%.

If you’ve held the stock over the past year, here are three reasons you will want to hang on to your shares…

1)      The current fully-franked dividend yield of over 6%, with analysts predicting virtually no change to dividends over the next three financial years. Of course things are likely to change with Insurance Australia’s recent $1.85 billion purchase of Wesfarmers Ltd’s insurance underwriting business, which could see dividends grow.

2)      Growing earnings and potentially a higher share price with bigger dividends. Insurance Australia is growing earnings per share at a decent clip already organically – 45% compounded growth over the past five years. Big acquisitions could see even higher levels of growth.

3)      Over the last five years, Insurance Australia has delivered shareholder returns of 14.7% on average per year. That goes a long way to beating the market and most fund managers over the long term.

With excellent management in place, strong brands and even exposure to developing nations across South-East Asia, Insurance Australia Group looks well placed to continue delivering excellent returns for shareholders.

If you already hold Insurance Australia Group, but want another high-dividend idea, have we got the stock for you.

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Motley Fool writer/analyst Mike King owns shares in Telstra. You can follow Mike on Twitter @TMFKinga

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