Insurance Australia Group Ltd flags 10% CAGR in EPS over 3-5 years

Shares in Warren Buffett backed Insurance Australia Group Ltd (ASX: IAG) have now climbed 19% over 2017 versus a 5.3% gain for the benchmark S&P/ASX 200 (Index: ^AJXO) (ASX: XJO) index.

When you include dividends of 33 cents per share paid out over FY 2017 then IAG’s total shareholder returns stretch even further ahead of the index. The FY 2017 dividend payout ratio represented 79% of cash earnings, with the group growing its return on equity 2.2% to 15.2%

IAG is also forecasting low-single-digit growth in gross written premium over FY 2018 on an insurance margin in the range of 12%-14%. Today the stock changes hands for $7.12, which means it offers investors a trailing fully franked yield of 4.63%.

Notably the company’s management is targeting a 10% compound annual growth rate in earnings per share over the next 3-5 years. It it is able to deliver on this target the shares could provide solid total returns for investors over the period.

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Motley Fool contributor Tom Richardson owns shares in REA Group and Cochlear. The Motley Fool Australia owns shares of Insurance Australia Group Limited. 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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