What's Next For RSA Insurance Group Plc?

I must apologise in advance if my figures are inaccurate, I must admit I haven't looked through each year of the company's accounts and I'm relying on data from an investment data provider...

But the data in front of me suggests a far from solid or dependable historical performance for RSA's shareholders in the past?

Per share earnings are around one third of their 1995 level, and since that year have been flat/negative in 6/16 years. Dividends per share are less than half of the levels enjoyed in the 1990s. In more recent years, since 2006 earnings seem to have been in decline.

I'm not sure as to the future prospects of the business, but my research would normally end there - RSA seems to (according to the track record in front of me) have a disastrous history with shareholder funds from an investment standpoint. That looks to have been vindicated in the long term movement of the share price since the 1990s.

While I totally agree it's very good policy to make dividend income an important aspect of portfolio construction, I'd be very careful as to what the company intends to do with your shareholder capital during the time of your investment. You can choose from a great range of superb international businesses with great long-term track records with shareholder funds, where the company is enjoying long term organic growth. 4% on Year 1 investment from TSCO or GRG, I would wager, is likely to be both safer and more lucrative in the long term, knowing their record of increasing earnings, dividends and shareholder capital over time.

The RSA yield trap has sprung itself before, if I'm not mistaken. Investors were invited in with an historical 7% yield in November 2001, with the price at around 300p, and a dividend close to 21p in the previous year. Investors each year were thus paid:

11p in 2002 (3.6%), 4p in 2003 (1.3%), 4.55p in 2004 (1.5%), 4.8p (1.6%), 6.6p (2.2%), 7.26p (2.4%), 7.9p (2.6%), 8.45p (2.8%), 9.04p (3%), 9.23 (3%). All before tax.

That's a total return of 77p per share on a 300p investment over 11 years. That's about 2% a year compounded annually - far worse than inflation over the same time period. And in terms of capital gain, 300p has become 130p. Forgetting taxes, dealing costs etc, that's a £30,000 investment leaving an investor with £20,700 after 11 long years of suffering.

Of course, past record is no indication of future return - but long suffering investors will often find that top quality companies stay top quality, while the unreliable ones stay unreliable, or worse. I worry that RSA has been less than reliable enough to warrant long term trust from prospective investors, in spite of the attractive yield.

Orb - I agree that the records of companies can be misleading without proper context. The returns noted above would be very different if an investor had purchased shares 18 months later in 2003 for example, at 45p per share.

However, when making a decision to hand over hard-earned capital to become part-owner of a company, an investor may find it useful to know the long term track record of the business over a number of years.

The basis for describing RSA as a solid, dependable company in the article, would surely be found in a long track record of delivering shareholder returns. I worry that this might be misplaced faith. Unless the figures are inaccurate, the business performance since the 1990s (and even since 2005) has been disappointing for shareholders. Even if other investors are bullish on RSA's future prospects, it should be recognised that the company has been less than solid, or dependable, in the recent past.

It may be true that the business is very different to the one of 15 years ago, and that re-structuring has hindered more recent performance. I have no recommendation one way or the other on this point, but some investors may feel that RSA will deliver much more consistent, growing earnings per share over the next 15 years, than they have in the past.

If an investor was to evaluate the probability of this though, an investment would need to be based on faith rather than precedent - especially risky when a high dividend yield is a major factor in the investment decision, opposed to a company with more attractive, dependable growth.

I wish all RSA holders the best of luck, but it's a very difficult business. I'm not sure I could name a single UK insurer that has an attractive long-term historical record with shareholder money.

I am with Mark. I bought in 2000, and then they were £4.81, and again @ £1.95 in 02, so I am nursing quite a big loss. I did buy in more last year at under £1.