Holding Insurance Australia Group Ltd (ASX: IAG) shares over 2024 has been highly lucrative for ASX investors. Back in early January, IAG was asking $5.55 per share. Today, those same shares are currently going for $8.06 at the time of writing.
That means that this ASX 200 insurance stock has rocketed more than 45% higher over the year to date. IAG is also up a healthy 36.8% over the past 12 months and has gained an extraordinary 94% since the company bottomed out at around $4 a share back in mid-2022.
At today's pricing, IAG shares are at their highest level in five years. Yep, the last time this ASX 200 stock had an '8' at the front of its share price was in late 2019.
Check that all out for yourself below:
So it goes without saying that IAG shares have been a phenomenal investment to have owned in recent years.
IAG shares at a five-year high
However, this success has come at a cost. That cost is the dividend yield on IAG shares today. Someone who bought IAG at the start of the year would have enjoyed a dividend yield of 4.86% on their investment over 2024, a result of the two IAG dividends investors have received this year.
The first was the 10 cents per share interim dividend paid out in March. The second was the final dividend worth 17 cents per share that investors bagged back in September. As is usual with IAG shares, both of these dividend payments came partially franked, at 40% and 50%, respectively.
Although an IAG investor who bought shares at the start of the year would have enjoyed that healthy 4.86% yield, the company's explosive share price growth over 2024 has resulted in the dividend yield falling dramatically. Today, IAG shares are trading on a trailing dividend yield of just 3.35%.
Remember, a company's dividend yield is a function of both its raw dividends per share and its share price. As such, a big increase in share price results in a big reduction in dividend yield.
So this begs the question: Are IAG shares still a buy for dividends at these five-year highs?
Assessing IAG's 3.35% dividend yield
Well, there's no doubt that IAG shares are looking expensive right now. Insurance companies tend to be cyclical businesses. Insurance payouts can vary wildly from year to year, depending on the occurrence of events like natural disasters, making the earnings (and thus dividends) of insurance providers like IAG difficult to predict.
That's why we can see the income investors enjoy from IAG fluctuate wildly.
For instance, IAG paid out an annual total of 13 cents per share in dividends in 2017 but was able to fund 39.5 cents per share in payouts in 2018. IAG rewarded investors with 20 cents per share in dividends in 2021 but only paid out 11 cents in 2022.
IAG is a high-quality company and is the largest insurance provider in Australia. As such, I think it is worthy of a place in any income-focused portfolio.
However, due to the cyclical nature of its payouts and relatively high current share price, I would keep my allocation to this company at a minimal level right now. There might be a better opportunity to build out a full position in the months and years ahead.
