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Does QBE Insurance Group Ltd belong in your income portfolio?


Where do investors go for income these days? Even the best cash management account on the market is offering only 4%, and even then you have to be willing to give up your government guarantee! It’s amazing to think that 4% actually looks quite attractive when it’s considered that it likely results in an after tax yield of between 2.5% and 3.0%.

17% Return Bank Accounts

My grandparents now proudly tell me about the days when you could stick your cash into a bank account and receive between 15% and 20% return on your cash – of course they fail to mention the crippling inflation and interest rates at the time – but the point is that in a low inflation world, investors are going to have to look harder for large, sustainable yields.

What are the options?

For investors or self-managed super fund owners, there are few options; cash, term deposits and bonds are all offering extremely low rates, corporate bonds are offering slightly more attractive rates but also involve more risk, while the housing market is apparently getting expensive and the share market could also be in a bubble!

I’m a great advocate for the property market and believe that great properties can be found for great prices at the moment, but there are more opportunities in shares, especially for investors that want a more liquid investment.

Top Dividend Stock?

One company getting some recognition for its dividend potential is QBE Insurance Group Ltd (ASX: QBE). The company was recently listed among the top 15 stocks for SMSFs, however a key part of the research indicated that reliability of income was a strong point.

The main reason, in many seasoned investors’ eyes, why Commonwealth Bank of Australia (ASX: CBA) has been such a great investment over the long run is its extremely reliable dividend! Even now, CBA is offering a 5.11% trailing yield, which investors can expect will increase this year, and probably the year after, and probably the year after that.

QBE on the other hand, was once a great dividend stock. QBE raised its annual dividend from 71 cents per share in 2005 to 128 cents per share in 2009, and at one point was consistently yielding over 5%. At that point however, the business started to go downhill. Dividends per share plunged to just 32 cents in the 2013 financial year but recovered to 37 cents last year.

Over the same period, CBA’s dividend payout has improved over 100%, from 197 cents to 401 cents, and only once took a backward step- at the peak of the GFC.

Does QBE Insurance Group Ltd belong in your income portfolio?

Analysts expect QBE will report a dividend per share (DPS) of 40.5 cents in the 2015 financial year, representing a dividend yield of nearly 3%. If we look two years into the future, the average of 15 analysts that have produced forecasts is for a DPS of 54 cents, implying a two-year increase of 33% and yield of 3.8%.

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Returns As of 6th October 2020

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

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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