Down 9% in a year, is it time to buy this ASX 200 dividend stock?

Now may be a good opportunity to add this dividend stock to your portfolio, in my view.

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The Steadfast Group Ltd (ASX: SDF) share price has dropped 8.9% over the past 12 months to close at $5.41 on Wednesday. The insurance broker's shares have underperformed the S&P/ASX 200 Index (ASX: XJO), which is up 8% over the past year.

The following chart shows that the Steadfast share price has exhibited little volatility. Over the last 10 years, the maximum drop from the high price to the low has been 16%, except in March 2020 during the height of the COVID-19 pandemic.

While past share price movements don't predict future trends, the resilient performance of the Steadfast share price seems to be supported by its strong fundamentals, in my view.

So, is this a buying opportunity for this consistent dividend payer?

Strong business fundamentals

Steadfast Group is Australia's largest general insurance broker network, providing businesses and individuals with a broad range of insurance products and services. The company operates through a network of brokerages, offering risk management solutions and support to its members. Steadfast also has interests in underwriting agencies, giving it a diversified presence in the insurance industry.

Steadfast reported a robust set of numbers in its 1H FY24 results. Underlying revenue rose 19.4% to $790.4 million, and underlying earnings before interest, tax, and amortisation (EBITA) soared by 21.4% to $229 million. While acquisitions supported the growth during the reporting period, the organic growth was also strong at 13.4%.

Its underlying net profit after tax (NPAT) increased by 17.5% to $106 million, while statutory NPAT rose similarly by 18.5% to $100 million. On a per-share basis, underlying diluted earnings rose 12.2% to 10.2 cents per share (cps).

Steadfast's pricing power and volume growth underscored the strong results, while the company attributes its acquisition strategies as key to success. Managing director & CEO Robert Kelly explained:

Once again, our underlying earnings growth for the half year was driven by sustained organic growth from higher prices from insurers and volume increases in the Group's insurance broking and underwriting agencies, and continued delivery of our acquisition strategy.

Consistent with our growth strategy, Steadfast Group acquired Sure Insurance, a business that is complementary to the existing portfolio. This acquisition, together with our Trapped Capital acquisitions made during the half year, further enhances Steadfast Group as the largest general insurance broker network and the largest group of insurance underwriting agencies in Australasia.

Additionally, we are progressing well with the implementation of our US expansion strategy with the acquisition of ISU Group with its established and trusted network and experienced management team.

For the full year in FY24, management guides for a 22% growth in its underlying EBITA and 18% in NPAT at the midpoint of its estimated range. Underlying diluted EPS growth is forecast to grow between 11% and 16%.

Consistent dividend payer

Among ASX investors, Steadfast is known for its steady increase in dividends.

Encouraged by a 12.2% growth in its underlying EPS in its half-year FY24 results, the company raised its fully-franked dividend by 12.5% to 6.75 cps.

Since its initial public offering in 2013, the company has consistently increased its dividend payments from 4.5 cps in FY14 to 15.75 cps in the last 12 months to March 2024. All these years, the company maintained 100% franking on its dividends, offering tax benefits to its shareholders. Its payout ratios have also increased over time, hovering around 60% to 75% in recent years.

At the current share price, Steadfast shares offer a dividend yield of 2.9%.

How expensive are Steadfast shares now?

Steadfast shares are trading at 20x FY24's estimated earnings, which is near the midpoint of its historical trading range of 13 to 25 times.

Its smaller competitor, AUB Group Ltd (ASX: AUB), is trading at a similar multiple with a price-to-earnings ratio (PER) of 20 times based on FY24 earnings estimates provided by S&P Capital IQ.

For comparison, NIB Holdings Limited (ASX: NHF) is trading at a PER of 16 on FY24 earnings estimates, noting nib is an insurance company, which is different from insurance brokers.

Foolish takeaway

While the Steadfast share price has been moving sideways, I think its business fundamentals remain strong.

Based on its historical trading range and compared to its smaller peer, AUB Group, its shares appear to be inexpensive to me. I think it's a good candidate for any portfolio seeking stable growth.

Motley Fool contributor Kate Lee 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 has positions in and has recommended Steadfast Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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