Insurance Australia Group Ltd (ASX: IAG) will reports its earnings to 31 December 2014 on Wednesday 18 February and investors will be eagerly awaiting the earnings per share result to see whether the group's dividend will be increased.
13% Yield
For two straight years IAG has been one of the best yield stocks on the ASX as a result of benign weather conditions and relatively good conditions for farmers in Australia. IAG's dividend increased from 17 cents per share in 2012 to 39 cents in the 2014 financial year, equated to a yield of over 13% if you purchased in 2012.
Today's dividend yield is approaching 6.5% and investors are hoping for an increase this financial year.
Dividend Expectations
In terms of what investors should look for in IAG's half-year report, IAG has forecast a 17-20% rise in Gross Written Premium (GWP) and a reported insurance margin in the range of 13.5–15.5%.
While the headline figure of 20% forecast growth in GWP (essentially revenue in insurance companies) seems impressive, it is almost entirely due to the acquisition of the insurance underwriting arm of Wesfarmers Ltd (ASX: WES) in 2014.
As a result, analysts are expecting roughly a 5% increase in net profit, but earnings per share may actually FALL as a result of shares issued as part of the transaction. Analysts believe that IAG will aim to keep shareholders happy by increasing the dividend payout by 1 cent per share to 40 cents for the full year, representing a yield of 6.4%, or 9.1% grossed-up for franking credits. Investors should keep a keen eye on any increase in the interim dividend of 13 cents per share (note that IAG tends to pay out much larger final dividends than interim dividends).
