It seems the patient shareholders in QBE Insurance Group (QBE) are on something of a promise after the company yesterday boosted its dividend payout ratio for investors in the 2016 financial year.
After reporting that its first-half net profit rose 24% to US$488 million ($661 million), directors said the dividend payout will rise to 65% of annual cash profit, from the current level of 50%.
The dividend payout ratio has been sliced to just 50% for a couple of years as the company battled with the downside of a poorly executed and managed expansion plan under the former CEO and chairman.
It was cut to conserve capital and allow QBE the room to make some tough decisions on quitting unprofitable businesses, while still maintaining enough capital to satisfy increasingly picky regulators.
Investors will be paid 20 cents a share (Australian) interim dividend for the six months to June 30, up from 15 cents a share in 2015.
And if there’s no increase in earnings over the next year, then the interim will rise to around 22.5 cents a share.
“Following the completion of our capital initiatives and in light of significantly improved earnings quality, capital is now above our target minimum requirement and provides the opportunity to increase the future dividend payout ratio whilst remaining comfortably within target capital levels,” the company said in yesterday’s statement.
QBE 1Y – QBE flags higher dividends for investors
QBE managed to expand gross written premium or revenue 2% in the June half year – this was at a time when it quit businesses in the Americas to cut costs and losses.
"While the gross cost of catastrophe claims increased by around $150 million driven by the worst series of weather events in Australia since 2011, the impact was mitigated by our enhanced aggregate reinsurance protection," chief executive John Neal said in a statement.
"Our operational transformation program coupled with other initiatives, particularly in North America, will have generated total run rate cost savings in excess of $350m by the end of 2015 and our continued focus on operational excellence gives us confidence that a further $100m of run rate savings will be achieved during 2016.
"While our commitment to exit non-core businesses has temporarily impacted premium income, these initiatives have significantly strengthened our balance sheet and materially reshaped profitability," Mr Neal said.
QBE shares rose nearly 3% to $14.38 at one stage before fading (like the rest of the market) to end up 0.3% at $14.02. The shares have comfortably outperformed the wider market in the past year.
