the insurance company has upgraded its dividend schedule in its FY21 half year earnings report.
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The QBE Insurance Group Ltd (ASX: QBE) share price has jumped into the green from the market open, now exchanging hands at $12.39 apiece, a 7% climb.
QBE shares are on the move after the insurance giant upgraded its dividend schedule in its FY21 half year earnings report.
Let’s investigate further.
Historically QBE has exhibited a rather flat level of annual growth in its dividend schedule.
For instance, from October 2015 – April 2020, QBE increased its dividend from 20 cents per share, to 27 cents per share, a compound annual growth rate (CAGR) of around 6%. Then, QBE gave its dividend a large haircut to 4 cents/share in September 2020.
In its FY21 half-year results, QBE confirmed its board had “declared an interim dividend of 11 cents per share, up from 4 Australian cents per share in the prior period”.
The insurance heavyweight scaled up its payout on the back of “strong first half growth”, that saw gross written premium (GWP) increase by around 27%, and net earned premium (NEP) rise roughly 9%.
Moreover, it recognised an underwriting result of US$642 million, which came through to an adjusted cash profit of $463 million, versus a loss of US$66 million. QBE recognised an 11.9% return on equity as a result.
What does this mean for investors?
The step-up in QBE’s dividend normalises the payout shareholders will receive back towards historical averages. In addition, restoration of a company’s dividend schedule is a sign of confidence from its management on the future trajectory of its earnings curve.
Furthermore, equally as assuring is when a company does so coming out of a period of economic uncertainty. It gives a clear impression of the company’s financial health, in terms of liquidity and assets. Moreover, it demonstrates a company is generating a high amount of free cash flow and cash from operations, on healthy margins through its profit and loss statement.
We see evidence of the same in QBE’s half-year results, particularly in cash flow metrics such as net profit after tax (NPAT), which grew from a loss of $712 million in June 2020 to a profit of $441 million this year.
Compounding this, QBE realised a more favourable expense ratio, down to 13.7% from 14.3% a year prior. In addition, QBE’s debt to equity ratio compressed to 31.1%, down from 34.8% a year ago.
Given these growth levers in the company’s growth engine, QBE undoubtedly believes the dividend is well covered as we walk through the coming periods.
Therefore, it stands to reason that investors have favoured the news coming out of QBE’s camp this morning. Shareholders can expect the 11 cents per share dividend to arrive in their bank accounts franked at 10%, as per the release.
QBE share price snapshot
The QBE share price has posted a year to date gain of 45%, extending the previous 12 month’s climb of 23%.
Both of these results have outpaced the S&P/ASX 200 Index (ASX: XJO)’s return of around 25% over the past year.
Over the past month alone, QBE shares have climbed 18% into the green.
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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.