How does the IAG dividend compare to QBE?

We look at how the IAG dividend measures up against QBE.

| More on:
man holding two stacks of coins varying in size representing a comparison of dividend yields between Medibank and NIB

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • IAG offers a better dividend yield of 4.38% compared to QBE's 2.51% 
  • IAG has a payout ratio of 84% of cash earnings, in line with its dividend policy to distribute 60%-80% of cash earnings in any full financial year 
  • Brokers Citi and JP Morgan both view IAG's shares as attractive value at the current share price   

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.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Dividend Investing

a woman with a huge happy smile on her face eyes a jar of coins next to her on a table.
Dividend Investing

Experts name 2 ASX dividend shares to buy next week

These dividend shares have been named as buys...

Read more »

two young boys dressed in business suits and wearing spectacles look at each other in rapture with wide open mouths and holding large fans of banknotes with other banknotes, coins and a piggybank on the table in front of them and a bag of cash at the side.
Dividend Investing

These 2 ASX 200 shares are going ex-dividend next week

We take a look at the two ASX 200 shares trading without rights next week.

Read more »

A happy construction worker leap-frogs over another as a third looks on
Dividend Investing

Locked in the CSR dividend? Here’s the payment info

Own CSR shares? It's time to check your bank account.

Read more »

A woman puts money in her piggy bank all rugged up for the winter cold.
Dividend Investing

ANZ rewards shareholders with its latest dividend. Here are the details

Payday has come for those who are eligible for the bank's dividend.

Read more »

Dividend Investing

2 excellent ASX dividend shares that analysts rate as buys in July

Here are two dividend shares rated as buys...

Read more »

Two women shoppers smile as they look at a pair of earrings in a costume jewellery store with a selection of large, colourful necklaces made of beads lined up on a display shelf next to them.
Dividend Investing

Here’s why I think Lovisa could be a top ASX dividend share

This retail ASX share could provide good dividend income for investors.

Read more »

Gold bars and Australian dollar notes.
Resources Shares

Do Evolution Mining shares pay a dividend?

The ASX 200 mining shares are known as good dividend payers -- is Evolution among them?

Read more »

a pile of colourful trainer shoes and sandshoes fashioned to look like a large shoe.
Retail Shares

What is the current dividend yield for Accent shares?

What kinds of dividends is Accent Group paying these days?

Read more »