Shares of QBE Insurance Group Ltd (ASX: QBE) have jumped 3.8% to $13.28 this morning after the general insurer updated the market on its performance for the year, and hinted at an increase in dividends.
Following a period of poor earnings results, QBE Insurance Group said that it was now in a better position to increase its dividend payments to shareholders during fiscal 2015 with profits also tracking higher.
According to the release, concensus amongst analyst forecasts suggests the insurer will increase its dividends by roughly 30% during the 2015 fiscal year, while the dividend will remain fully franked for this year and next.
QBE's chairman Marty Becker said: "Assuming a constant payout ratio of around 50%, this would indicate shareholders might reasonably expect an increase in dividends during the current year." He also stated that the Board would give "due consideration" as to whether it should increase its current payout ratio from 50%.
That limit was set in 2013 at a time when the company was battling soaring insurance claims and profit downgrades. In recent years, QBE has sold off non-core divisions in order to simplify its balance sheet and ensure more predictable earnings streams.
Meanwhile, it has also reduced its debt-to-equity ratio considerably (from 44.1% a year ago down to 32.5% in December), while further improvements are expected this year. Although it said that a strengthening US dollar would likely result in lower premium revenue for the year, its combined operating ratio should not be materially impacted.
Pleasingly, its first quarter results are also tracking in line with management's expectations.
Should you buy QBE Insurance Group?
QBE Insurance Group's shares have rallied hard since mid-January, climbing a remarkable 31% in that time. By comparison, fellow insurer Insurance Australia Group Ltd (ASX: IAG) has retreated almost 3%, while the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has jumped 12%.
A jump of that calibre might be enough to deter some investors, but the stock still appears to be a reasonable buy. At $13.28, the shares are trading on a projected price-earnings ratio of roughly 16.3 times with strong earnings growth expected over the next two years. It also offers a compelling dividend yield of 3.4%, fully franked.
