Why is the next IAG dividend not fully franked?

Investors might wonder why the next Insurance Australia Group Ltd (ASX: IAG) dividend is not fully franked.

The 5 cents per share that is due to be paid to shareholders on 22 September will only be franked by 70%.

One possible reason why the IAG dividend is not fully franked is due to the ups and downs the general insurance company has gone through over the last couple of financial years.

In FY21, the business reported a $427 million loss. Earnings bounced back sharply in FY22, though, with net profit after tax (NPAT) reaching $347 million.

The company could therefore be in the process of returning value back to investors gradually as it recovers from the economic tremors of COVID-19.

Something to keep in mind, too, is that the interim dividend of 6 cents per share — giving a full-year dividend of 11 cents per share — paid out in March was unfranked.

In FY21, or the same year IAG recorded a huge loss, its full-year dividend of 20 cents was also unfranked.

In FY20, just after the peak of the pandemic, the company didn’t pay out a final dividend to investors at all, and paid a 10 cent interim dividend, 70% franked.

It should be noted that, until recently, it was unusual for IAG’s dividend to be partially franked, as its interim and final dividends have been fully franked from March 2001 up until August 2018.

The 5 cents per share dividend is also the lowest level since March 2012, with dividends normally fluctuating in the 15 cents to 20 cents range or higher from September 2013 to October 2018.

So FY22’s franking of 70% could be seen as a significant improvement over the last couple of years, at least from a franking perspective. And as life moves on from the new normal, investors may look forward to higher and fully franked dividends in the future.

IAG share price snapshot

The IAG share price closed 2.18% higher today at $4.69. That takes its gains in 2022 so far to more than 5%.

Meanwhile, the broader market is struggling, with the S&P/ASX 200 Index (ASX: XJO) down almost 8% over the same period.

IAG has a market capitalisation is $11.31 billion.

The post Why is the next IAG dividend not fully franked? appeared first on The Motley Fool Australia.

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Motley Fool contributor Matthew Farley has no position 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 positions in and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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