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3 reasons to BUY Insurance Australia Group Limited

Shares in Insurance Australia Group Limited (ASX: IAG) have ended the week on a good note, jumping as high as $5.99 in today’s session before retreating slightly to $5.97 – a 12c or 2.1% gain for the day.

Although the stock is still sitting in the red for calendar year 2014, it has rallied hard since its February 52-week low of $5.32, returning 12.2% in that time. In comparison, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has risen 7.8%.

While the stock might not be as cheap as it was back then, there are still plenty of reasons to like the stock. Here are three of those reasons…

  1. In this low interest rate environment, it’s difficult to look past Insurance Australia Group’s incredible dividend. At $5.97, it offers a fully franked 6% dividend yield. That’s even greater than the dividends paid by Telstra Corporation Ltd (ASX: TLS) and Woolworths Limited (ASX: WOW).
  2. Big acquisitions, like that of Wesfarmers Ltd’s (ASX: WES) underwriting business, should provide a solid boost to earnings in the long run.
  3. The stock is trading on a projected P/E ratio of 11.4. Considering it has delivered investors with an average annual gain of 14.8% over the last five years (thrashing the returns of the broader market), that seems like a very reasonable price to pay.

Another high yielding ASX stock you need to look at…

Insurance Australia Group’s dividend is extremely appealing, but there is another (very promising) ASX stock I’m keeping my eye on…

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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