After having looked at a few options I noticed RSA's latest results announcement, which piqued my interest.
RSA has been near the top of the FTSE dividend yield for a while but I was a bit wary of the high yield, which at around 8.6% is almost too high. Dividend cover is low, too - at 1.3 (but forecast to rise to 1.5 next year).
However, the market's response to the results, a positive write-up in Motley Fool and the fact that RSA is increasing the dividend indicates to me that perhaps the company is undervalued.
- Net written premiums up 9%
- Underwriting result of £375m, up 58% and a combined operating ratio (COR) of 94.9%
- Investment result up 19%
- Operating profit up 38%
- Profit before tax up 29%
- Overseas operations are expected to constitute a greater share of Group premiums, targeting 70% by 2015 or before
However, possibly in recognition of financial realities, RSA decided to grow the dividend at more modest levels, reflecting the impact of low investment yields and raised the dividend by only 2% - with an aspiration to return to a higher level of dividend growth as market and economic conditions improve.
So, in summary: a very good yield, an international operation based in the UK and some assurance that the company is behaving sensibly in terms of its long-term future.
Purchase price: £1.088.
Update 20/2/13: Indeed, the yield turned out to be too good. In the face of reduced profits the company has rebased the dividend - downwards, of course.
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