Royal & Sun Alliance (RSA:LSE) 2005-04-11
Royal & SunAlliance is currently the fourth highest yielding share in the FTSE100 index, the three above it being United Utilities, Lloyds TSB and Alliance & Leicester.
Royal & Sun Alliance has been through traumatic times in recent years. A few years ago the shares were around 500p and paid a dividend of 21 p. Now they trade between 75-85p with a dividend of about 4.7p forecast for the year to 31/12/05.
In 2004 problem upon problem hit the company, eventually requiring a major re-organisation and a rights issue. At some points it seemed that as soon as they got over one difficulty then another struck, so disaster prone did they appear.
The principal element of that re-organisation involved disposing of all its life interests to concentrate on
becoming a supplier of general insurance services.
Large amounts of cash were raised in the process of these disposals plus the rights issue, it being necessary to raise this money so as to satisfy the capital adequacy regulations that govern insurance companies and generally strengthen the balance sheet.
There was also a strategic switch from Life & General insurance back to their basic bread and butter business of General insurance. Leaving them in their present guise as the largest pure general insurance share in the market.
RSA is a member of the FTSE100 and is ranked at ninety two in the index. RSA is capitalised at some £2.5bn, so its no small fry!
As a result of its problems, Royal slashed its dividends mercilessly from 21.0p for the year to 31/12/00,
to 3.88p in 2002. From then on they have risen to 4.50p in 2003 with a consensus forecast of 4.59p for 2004.
The consensus for 2005 is 4.7p to give the forecast yield of 5.4%. Not exactly a long-term rising dividend history then, though if you pick the low point of 3.88p and include the two forecast years there is modest recent growth.
The current yield, even with, Royal’s chequered history, is worth buying especially with the share price where it is now. Royal & Sun Alliance yields big and it is a big cap. We can't see much downside from where it is now.
Despite Royal’s problems, money could be made from trading the shares and we have done so profitably,over the last few years.
We see Royal as a buy on a short-term basis. This is not the type of share we will hold long term in the portfolio.
Buy Royal & Sun Alliance (RSA:LSE) up to 85p