A Closer Look at RSA Insurance's Dividend Potentialro

Before you go, we thought you'd like these...
Before you go close icon

LONDON -- Dividend income accounts for around two-thirds of total returns, the actual rate of return taking into account both capital and income appreciation. Given that share prices are often volatile and unpredictable, the potential for plump dividends can give shareholders much-needed peace of mind for decent returns.

I am currently looking at the dividend prospects of RSA Insurance Group  and assessing whether the company is an appetising pick for income investors.

How does RSA Insurance Group's dividend history stack up?

 2009201020112012
FY Dividend Per Share8.25p8.82p9.16p7.31p
DPS Growth7%6.9%3.9%-20.2%
Dividend Cover1.5x1.1x1.3x1.3x

Source: RSA Insurance Group Company Accounts.


RSA boasted a solid record in recent years, steadily increasing payouts since 2009 even as earnings remained broadly under pressure during these years. However, last year's decision to rebase the dividend in an effort to recharge earnings potential eventually took a scythe to shareholder payments.

Dividend coverage remained well below the safety benchmark of two times earnings during the period, which ultimately left shareholders heavily exposed to last year's eventual dividend cut.

What are RSA Insurance Group's dividends expected to do?

 20132014
FY Dividend Per Share6.91p6.71p
DPS Growth-5.5%-2.9%
Dividend Cover1.8x1.9x
Dividend Yield6%5.8%

Source: Digital Look.

City analysts are anticipating an earnings rebound from this year onwards, with earnings per share expected to advance 30% and 3% in 2013 and 2014 correspondingly. RSA announced in May that premiums had grown 7% to 2.4 billion pounds in the first quarter, propelled predominantly by surging emerging market activity where the company is investing heavily, underlining the group's solid growth prospects.

However, the potential for improved earnings are not expected to be matched with a resurgence in dividend payments. RSA's decision to slash shareholder payouts in order to pursue growth opportunities, thus securing a progressive dividend policy for the long haul, is anticipated to keep dividends rolling lower in the interim.

How does RSA Insurance Group's dividend prospects rate against the competition?

 Prospective Dividend YieldProspective P/E Ratio
Non-life Insurance4.8%10.6
FTSE 1003.1%16.6

Source: Digital Look.

RSA was recently dealing on a P/E readout of 9.4 for 2013, beating the readings for both its rivals in the insurance sector as well as the broader FTSE 100. And the company also outstrips both of these groups in terms of forward dividend yield, even though payouts are expected to keep heading lower.

Although RSA's decision to rebase the dividend makes sense for long-term growth, in my opinion, this leaves huge question marks over what payouts could clock in at in the meantime. May's interims yielded mostly positive news, although lasting weakness in traditional markets casts a shadow over future earnings, and this could bring fresh pressure upon potential dividends. I believe that more secure stock markets picks are available for income investors.

Multiply your investment income with the Fool
Although RSA Insurance Group is a risky pick for income investors at present, there are plenty of other FTSE 100 winners available to really jump-start your investment income. So check out this brand-new and exclusive report covering a multitude of other premium payers right now.

Our "5 Dividend Winners to Retire On" wealth report highlights a selection of tasty stocks with an excellent record of providing juicy shareholder returns. Among our picks are top retail, pharmaceutical and utilities plays which we are convinced should continue to provide red-hot dividends. Click here to download the report -- it's 100% free and comes with no obligation.

The article A Closer Look at RSA Insurance's Dividend Potentialro originally appeared on Fool.com.

Royston does not own shares in RSA Insurance Group. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners