Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, RSA Insurance Group plc (LON:RSA) has been paying a dividend to shareholders. Today it yields 4.1%. Does RSA Insurance Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it the top 25% annual dividend yield payer?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has the amount of dividend per share grown over the past?
- Does earnings amply cover its dividend payments?
- Will it be able to continue to payout at the current rate in the future?
Does RSA Insurance Group pass our checks?
The current trailing twelve-month payout ratio for the stock is 66%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 69% which, assuming the share price stays the same, leads to a dividend yield of around 6.5%. Moreover, EPS should increase to £0.45.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Dividend payments from RSA Insurance Group have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
In terms of its peers, RSA Insurance Group generates a yield of 4.1%, which is on the low-side for Insurance stocks.
If you are building an income portfolio, then RSA Insurance Group is a complicated choice since it has some positive aspects as well as negative ones. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three fundamental aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for RSA’s future growth? Take a look at our free research report of analyst consensus for RSA’s outlook.
- Valuation: What is RSA worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether RSA is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.