Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

As the RSA share price dips further in the stock market crash, I’d buy

Published 30/07/2020, 16:56
Updated 30/07/2020, 17:10
As the RSA share price dips further in the stock market crash, I’d buy

As the RSA share price dips further in the stock market crash, I’d buy

Unexpectedly high impairment provisions across the banking sector have dealt a blow to financial stocks this week, as we face the growing possibility of a second stock market crash. Barclays (LON:BARC) kicked it off on Wednesday, followed by Lloyds the next day. The financial contagion also spread to the insurance business, with Aviva (LON:AV) shares down another 4%. And though RSA Insurance Group (LSE: RSA) reported relatively positive figures on Thursday, it didn’t escape. Morning trading sent the RSA share price down 4%, and it’s lost 26% since the start of the year.

Though the stock market crash has hit financials hard, RSA’s statutory pre-tax profit for the half fell by only 7% to £211m. But RSA put the underlying figure a lot higher, at £332m for a 14% increase. Underwriting profit was up 33% to £240m, and RSA reported a combined ratio 92.2%. Chief executive Stephen Hester said: “RSA is reporting good growth in underwriting profits for the first half from continued business improvement actions“.

To put the pandemic effect into some sort of perspective, he added: “COVID-19 impacts on operating profits were broadly neutral in H1, though related financial market charges reduced our statutory results“.

No stock market crash dividend I think the most important driver of the RSA share price will be the company’s dividend plans beyond the stock market crash. RSA suspended its final 2019 dividend in line with the PRA’s instructions. Now it says it “expects to resume dividends as soon as judged prudent,” though not just yet. There won’t be a 2020 interim dividend. And that strikes me as a sensible decision as we could still be a long way from the end of the stock market crash.

RSA did say the resumption of dividends, assuming no unforeseen events, “should be by the time of full year results 2020“. That’s good as it stands. But what really made me sit up and take notice is the firm’s “aim to catch up on missed dividend payments over time consistent with prudent capital management“.

RSA share price recovery? I rarely worry when my share prices fall, even in the current stock market crash. That’s because I invest in dividend stocks. And as long as I’m getting my annual cash, I’m happy. Of course, a lot of us aren’t getting that this year. But catching up on missed payments would mean RSA shareholders will suffer no real income loss. Just a delay. I reckon buying while the RSA share price is down could lock in a terrific income stream for years to come.

As with most these days, we have to be very wary of the current forecasts for RSA. A prediction for a 2020 return to pre-suspension dividend levels looked over-optimistic even before the latest update. And now it’s a completely non-starter. Still, a 2021 dividend even just in line with 2019 would yield 5% on the current RSA share price.

Combine that with the targeted catch-up dividends, and with RSA being very prudently managed under the guidance of Hester, and I’m seeing an attractive buy for both growth and dividends once the stock market crash is behind us.

The post As the RSA share price dips further in the stock market crash, I’d buy appeared first on The Motley Fool UK.

Alan Oscroft owns shares of Aviva and Lloyds Banking Group (LON:LLOY). The Motley Fool UK has recommended Barclays and Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2020

First published on The Motley Fool

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.