Suncorp Group Ltd reports: Should you buy for its HUGE dividend yield?

It was a solid but unspectacular half-year result from Suncorp Group Ltd (ASX:SUN), but should you invest in its shares for its huge dividend?

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Insurance giant Suncorp Group Ltd (ASX: SUN) has seen its shares edge higher in morning trade after the release of a solid but unspectacular half-year report.

Highlights from the half include:

  • Revenue from ordinary activities increased 10.8% to $8,638 million over the prior corresponding period.
  • Cash earnings of $584 million, up 5% on the first half of FY 2016.
  • Half-year Cash Return on Equity increased to 8.5% from 8.3%.
  • Underlying Insurance Trading Ratio (ITR) of 11%, compared to 10.1% in the first half of FY 2016.
  • Fully franked interim dividend of 33 cents per share, compared to 30 cents per share a year earlier.

I think today's result is an indication that the One Suncorp strategy is working and particularly in its General Insurance segment.

Thanks to a combination of increasing gross written premiums and lower net incurred claims, half-year net profit after tax in the segment increased 42.5% to $369 million.

A key driver in its gross written premium increase was its compulsory third party (CTP) insurance product. Half-year sales of CTP grew 27.3% to $722 million thanks to launching into South Australia and price increases in New South Wales.

Remediating Home and Motor claims cost issues was a top priority for Suncorp and it duly delivered during the half.

Whilst this improvement helped take the ITR from 10.1% to 11%, CEO Michael Cameron doesn't expect it to stop there. He's confident that the ITR is on a path to a strong 12%.

Elsewhere its Banking & Wealth business delivered half-year net profit after tax of $208 million, up slightly on the first half of FY 2016. It finished the half with a net interest margin of 1.78%, comfortably within the target range of 1.75% to 1.85%.

The only real disappointment was its New Zealand segment which saw net profit after tax fall 53.8% to $36 million. Whilst the segment's life insurance portfolio performed well, earthquakes in the country had a negative impact on its Home and Motor segment.

Is it a buy?

I feel confident that this result justifies my belief that Suncorp is a superior investment option to QBE Insurance Group Ltd (ASX: QBE) and Insurance Australia Group Ltd (ASX: IAG).

Not only is it the cheapest of the lot, but its dividend is easily the most lucrative. Following its half-year increase, Suncorp now provides a trailing fully franked 5.4% dividend. I think this and its turnaround strategy make it one of the best dividend shares on the ASX today.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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