Insurance Australia Group Ltd (ASX: IAG) just reported its FY21 half-year result, is it a good dividend share?
IAG FY21 result
IAG revealed that its gross written premium (GWP) increased by 3.8% to $6.2 billion. The insurance profit increased by 33.1% to $667 million. However, the underlying insurance profit margin declined by 100 basis points (1.00%) to 15.9%. But the reported insurance margin rose by 440 basis points (4.40%) to 17.9%.
The company’s cash earnings increased by 21.6% to $462 million.
However, the reported net profit actually fell by $743 million to be a $460 million loss in this result.
In Australia, there was GWP growth of 5%. IAG said that there was rate-driven growth of 3.1% in short tail personal lines, with increases in line with claims inflation. Commercial growth was stronger of 8%, with around 7% rate increases, with significant rating action across liability, property and agricultural portfolios.
The Australian underlying margin improved compared to the second half of FY20 to 15.3%. There was also a higher reported margin of 17.3%. IAG said that the reset of its operating model is well advanced.
New Zealand GWP grew by 2.8% in local currency terms which was largely influenced by the rate. There was 3.1% business growth and 2.6% growth in the consumer side, assisted by volume growth.
New Zealand also saw a higher underlying margin compared to the second half of FY20, up to 18.6% and a reported margin of 20.4%.
IAG dividend
IAG declared an interim dividend of 7 cents per share, which was down 30% from the 10 cents per share dividend last year.
The company said that it has had an adverse ruling relating to business interruption insurance with the pandemic, with a post-tax earnings impact of $805 million. IAG said this was of unusual nature and scale.
With cash earnings of $462 million for the first half, the dividend of 7 cents per share dividend represents a cash payout ratio of 37.4%.
IAG said it’s committed to a 60% to 80% pay out ratio. However, if a final dividend is declared then no franking should be anticipated by investors.
Summary thoughts
The insurance giant said that it’s determined to deliver top quartile total shareholder returns with a sustainable growth profile. It continues to refine its strategy to be a stronger and more resilient business.
Insurance isn’t an industry that I think can deliver strong and consistent returns/profit because of the nature of natural hazards and recessions. For that reason, it’s not a business I’d buy if I were relying on dividends.
I believe there are other ASX dividend shares with more reliable dividends like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and Brickworks Limited (ASX: BKW).
Instead of IAG, I suggest getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.
