What this top broker is saying about IAG shares

IAG shares are trading close to their four-year highs.

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Insurance Australia Group Ltd (ASX: IAG) shares are up 2.77% to $6.50 apiece on Thursday.

The ASX insurance stock is trading just a few cents off its four-year high of $6.54 set on 10 April.

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There is no official news from Australia's biggest general insurer today.

IAG shares are likely riding higher because the whole market is up. In earlier trading, the S&P/ASX 200 Index (ASX: XJO) leapt to an intraday high of 7,891.5 points, up 1.78%.

The ASX 200 is rising following a strong night on Wall Street with the S&P 500 hitting a new closing high.

This was on the back of encouraging new US inflation data which has renewed hopes of an earlier interest rate cut from the US Federal Reserve.

IAG shares better than Suncorp

As reported in The Australian today, Citi analyst Nigel Pittaway prefers IAG shares to fellow insurance stock Suncorp Group Ltd (ASX: SUN), but only just.

In a note to investors, Pittaway said:

The winner in our head-to-head analysis is IAG, although the winning margin is slight.

The broker explained that both ASX insurance stocks had positive short-term prospects, including strong top-line growth and the likelihood of expanding margins.

He said:

In our view, both have strong earnings momentum and we expect the market to continue to buy this for now, even as valuation concerns become more paramount.

Pittaway noted that Suncorp had the best premium growth in Australia, the best capital return, and likely the better dividend potential of the two.

He commented that IAG had an opportunity to cut costs, and currently offered relatively better market value than Suncorp shares.

Citi has a 12-month share price target of $6.75 on IAG, implying a potential 3.7% upside.

The consensus among 14 analysts on CommSec is that IAG shares are a moderate buy. Four say the stock is a strong buy, nine say it's a hold, and one says IAG shares are a moderate sell at today's share price.

Goldman Sachs has a neutral rating on IAG with a 12-month share price target of $6.30. This implies a potential 3.2% downside on the ASX insurance stock.

What's next for IAG?

My colleague Tristan recently discussed the earnings outlook for IAG through to 2026 based on a new note out of broker UBS.

As for dividends, the consensus forecast on CommSec is for IAG to pay 26 cents per share in 2024, 30 cents in 2025, and 32 cents in 2026.

That means dividend yields of 3.99%, 4.6% and 5.7%, respectively, plus some franking.

In 2023, the annual dividend had 30% franking, and this year's interim dividend had 40% franking.

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