How does the IAG dividend compare to QBE?

The Insurance Australia Group Ltd (ASX: IAG) dividend fell at its most recent earnings season which disappointed investor expectations.

After reaching a high of $4.93 on 24 February, the insurance giant's shares have tumbled almost 15% over the following month.

Since then, its shares have moved in circles following the company's update on the widespread flooding affecting Australia's east coast.

At Monday's market close, IAG finished 2.47% lower at $4.34.

The IAG dividend in a nutshell

Based on the company's cash earnings of $176 million, the IAG Board declared an unfranked interim dividend of 6 cents per share. The latest dividend represents a 14.2% decline from the 7 cents declared in the prior comparable period.

Management noted that the latest dividend equates to a payout ratio of 84% of cash earnings. This is in line with the company's dividend policy to distribute 60%-80% of cash earnings in any full financial year.

IAG has a current trailing dividend yield of 4.38%, which is higher than the sector average of 3.8%.

So, how does this stack up against QBE?

When compared with its peer, the QBE Insurance Group Ltd (ASX: QBE) board elected to pay a final dividend of 19 cents per share. This brought the FY21 dividend to 30 cents per share, up from 4 cents per share in 2020.

The dividend reflects a payout of 41% of QBE's adjusted cash profit.

While recognising the improving profitability, the board revised the group's dividend policy to 40-60% of annual adjusted cash profit. Previously, this was from "up to 65% of adjusted cash profit".

QBE stated it wants to retain capital to support growth ambitions and facilitate normalisation of its investment asset risk profile.

On a trailing dividend yield basis, QBE stands at 2.51%.

As you can see, IAG is more generous to its shareholders with a bigger dividend yield compared to QBE.

However, it's worth noting that the latter's share price has risen almost 5% in a month while IAG shares have fallen by 3%.

Are IAG shares a buy?

A number of brokers weighed in after the company released its half year results in mid-February.

Analysts at Morgans slapped a hold rating on the IAG share price, cutting its price target by 3.8% to $5.12.

On the other hand, Citi and JP Morgan raised their price targets by 2.7% to $5.75, and 0.9% to $5.50 respectively. Based on the current share price, this implies an upside 32% and 26% respectively on both brokers' assessments.

IAG commands a market capitalisation of roughly $10.97 billion.