LONDON -- Long-term investors in RSA (LSE:RSA) have been disappointed. Today, the shares are 16% lower than where they traded five years ago. If it weren't for dividends, dedicated holders would be underwater on their investment.

The company disappointed the market earlier this year when it announced a dividend cut. This has led to the shares today trading down 8% on where they were at the beginning of the year.

However, in the last month, RSA has outperformed the FTSE 100. By my calculations, this could presage further rises.

Prior to the recent dividend cut, RSA shares were frequently one of the highest yielding in the FTSE 100.

Go back three years, and the shares were trading at around 118 pence. In the year that had just passed, RSA has made 13.9 pence of EPS (earnings per share). That put the shares on a historic P/E of just 8.5 times earnings and a historic yield of 7%. However, for the full year 2010, earnings at RSA fell 27%. That low P/E back then now appears totally justified.

Today, RSA's valuation has picked up. The shares are available on an historic P/E of 10.4 times earnings. Although that is more expensive than the shares were three years ago, the outlook is much brighter. RSA is forecast to grow earnings by 10.5% this year -- putting the shares on a 2013 P/E of just 9.4.

Better still, more earnings growth is expected in 2014, bringing the P/E down to just 9.0 times forecast earnings. The recent cut to the dividend and the strong earnings outlook raise the likelihood of dividend increases in the future.

By my reckoning, RSA shares will yield 5.3% this year. That's an income worth taking, especially as it now looks safer than it has for years.

Regardless of the strong market conditions, I think that RSA would be more fairly valued if it were 10% higher today. That would put the shares on a 2013 P/E of just 10.3. Such a rise would bring the dividend yield down to 4.8%. That would still be attractive versus other blue-chips.

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