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Why RSA Insurance Group plc Should Be A Candidate For Your 2014 ISA

RSARSA Insurance (LSE: RSA) (NASDAQOTH: RSANY.US) was forced to slash its dividend in 2012 after the crunch years left it just too overstretched.

Now, dividend income is something I definitely look for in a good ISA share, so why do I still think RSA is a good candidate despite the cut?

For one thing, 2011 brought a dividend yield of a massive 8.7%, and that really was very high — in 2012 we saw the yield reduced to 5.8%, which was still respectable. But for 2013, the company only provided shareholders with a paltry 2.5% after the final dividend was canceled.

Accounting irregularities

But 2013 was an exceptionally bad year. On top of the general recessionary slump, RSA uncovered some dodgy accounting in its Irish operations which left it with a £200m capital shortfall and a £244m pre-tax loss for the year.

Since then, the firm has announced a new rights issue to shore up its capital health, and has decided to dispose of some non-core businesses to raise some more cash.

You still think things sound bad?

Well, the firm is very confident that the accounting shenanigans were restricted to Ireland, so there should be no further fallout from that.

New dividend policy

And while the interim dividend this year should be modest so soon after the rights issue, the company is planning to get back to paying out 40-50% of earnings before too long. Based on forecasts for 2014, we could be seeing a full-year dividend yield of around 4% — rising closer to 5% for 2015. And that’s not a bad yield at all.

And with the shares priced at 90p, that puts them on a forward P/E of under 9, when the FTSE average is currently around 17.

Cheap now?

Now, it might take a few years for the firm’s recovery to really bear fruit — but if you’re investing with a multi-decade ISA horizon, that’s not a problem. In fact, in addition to buying shares in a company with a promising long-term future, you might even do well on the timing right now — the share price is down 13% over the past 12 months, but it is already back up a bit from its post-slump bottom.

So is RSA a good share for some of the £15,000 ISA allowance that’s coming your way in July? Well, that’s for you to decide.

But if you use your ISA allowance for a diversified portfolio of shares including RSA and keep them for decades, you could even be on your way to a million-pound pot by the time you retire -- and our expert Motley Fool report Ten Steps To Making A Million In The Market can help you get there.

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Alan does not own any shares in RSA.