Insurance is one thing that many people don't want to think about. We all we need it and when bad things happen, its great to have in your corner. It's never going to be as sexy as selling iPhones, but for investors, insurers can be long-term investment heroes.
Suncorp Group Ltd (ASX: SUN), the general insurance and banking company is one of the leading insurers that investors should know about. Here are four reasons why it is a leader and should be a stock to consider for your portfolio.
First, in the past five years it has a total shareholder return of an average compounded 23.5% annually. In the last two years, the stock is up about 60% to $13.06. It and other insurers like Insurance Australia Group Limited (ASX: IAG) are recovering after heavy claims from natural disasters in 2011.
Second, thanks to changes it made to its banking division, the half-year banking operating earnings were way up. Certain bad loans on its books were sold off to Goldman Sachs, lightening loan provisions that flowed onto earnings.
Next, since 2011 dividends have doubled from 35 cents per share to 75 cps. Two special dividends were paid during this time. The latest interim dividend itself was raised to 35 cps – up 40%. The company is considering a capital return in FY2014 and this could mean yet another special dividend.
And lastly, earnings have an opportunity to take off from here. It is simplifying its business structure to squeeze out savings and improve margins. The company expects that it may see $225 million in benefits from these changes.
After those big natural disasters several years ago, the company is charging higher premiums. If that level of catastrophic damage doesn't occur, earnings can be higher.
The company is in recovery mode, so investors still have an opportunity before all the changes flow into the bottom line.
