Insurance Australia Group Ltd (ASX: IAG) shares are ramping up the passive income payment to shareholders. It's expected to increase its dividend payment to investors in FY24. In this article, I'm going to look at how much dividend income a $10,000 investment in IAG shares will pay in 2024.
IAG is one of the biggest insurance businesses in Australia and New Zealand, with brands including NRMA Insurance, CGU, SGIO, SGIC, Swann Insurance and so on.
How much passive income IAG shares could pay
IAG has just declared a final dividend per share of 9 cents in FY23, which was an increase of 80% year over year. That brought the full-year dividend to 15 cents per share, up 36% compared to FY22. FY23 saw gross written premium (GWP) growth of 10.6% to $14.7 billion, the insurance profit rose 37% to $803 million and net profit after tax (NPAT) grew 140% to $832 million.
In FY24, Commsec currently has an estimate that IAG shares are going to pay an annual dividend per share of 27.2 cents. That would be a year-over-year increase of 81% compared to FY23. At the current IAG share price, this would equate to a grossed-up dividend yield of 6.7%.
What a $10,000 investment could do for a portfolio
I'd always advocate for a diversified portfolio, so if someone had a total of $10,000 to invest, I wouldn't put it all on IAG shares. But, assuming we did put $10,000 into the insurance giant's shares, we'd be able to buy 1,727 shares.
If the business is successful at growing the dividend in FY24 (and beyond) then a $10,000 investment today could lead to cash dividends of $469.74 and franking credits of approximately $201.32, leading to a total grossed-up dividend payment of $671.
In FY25 the business could then pay cash of $518.10 and franking credits of $222.04. This would bring the full-year payment to $740.14.
These dividend payments are projected to occur alongside earnings per share (EPS) growth. In FY24 it could generate EPS of 36.7 cents and in FY25 it could make EPS of 39.7 cents, according to Commsec, though projections can change.
This would put the current IAG share price at 16 times FY24's estimated earnings and under 15 times FY25's estimated earnings.
IAG share price snapshot
As we can see on the chart below, IAG shares have gone up by 24% in 2023 to date, while the S&P/ASX 200 Index (ASX: XJO) has only gone up by 2.4%.
