Insurance Australia Group Ltd (ASX: IAG) shares have been a favourite of income investors over the long term.
That's because the insurance giant has a tendency to return a decent portion of its earnings to shareholders through dividends each year.
One legendary investor that has been pocketing IAG dividends for a number of years is Warren Buffett. The Oracle of Omaha's Berkshire Hathaway business acquired a stake in the company in 2015 and then topped up its position in a capital raising in 2021.
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Generating a second income from IAG shares
What if you wanted to follow in Buffett's footsteps and generate a $10,000 second income from IAG shares? Well, it certainly is possible.
According to Citi, its analysts are expecting a 17 cents per share partially franked dividend in FY 2023.
This means that if you wanted a $10,000 passive income from its shares, you would need just under 59,000 IAG shares.
Based on the current IAG share price of $4.65, that would mean a sizeable investment of $275,000. However, if you're willing to be patient, you could potentially make a much smaller investment.
That's because Citi is expecting a big jump in the company's profitability in FY 2024 to underpin the almost doubling of its dividend to 30 cents per share.
Based on that dividend, you would only need to buy 33,333 IAG shares to generate a $10,000 second income. That equates to an investment of $155,000.
The good news is that with Citi then forecasting another dividend increase to 34 cents per share in FY 2025, those 33,333 IAG shares would provide investors with another $11,300 of income the following year if its analysts are on the money with their estimates.
Incidentally, Citi also sees plenty of upside potential for the company's shares with its buy rating and $5.70 price target. This represents approximately 22% upside and would value those 33,333 shares at $190,000. That's a gain of $35,000 on your original investment before factoring in the dividends. Not bad!
