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Is it time to buy Suncorp?

Suncorp’s (ASX: SUN) massive insurance names will get a boost as premiums begin to rise in coming years, so is now the time to buy in?

Suncorp is a retail and business bank that sources much of its revenues from its profitable insurance brands like AAMI, GIO, APIA, Suncorp, Vero and Shannons. Over the past five years, the company has been trying to pay down bad debts that have existed since the GFC. At the time, share prices were as high as $23.

With no notable natural disasters and an ongoing expansion of its insurance products, Suncorp reported NPAT up 47.6% to $574 million for the half-year ended 31 December 2012. This has been a massive attraction for investors, as major competitor QBE Insurance (ASX: QBE) struggled to impress investors with an 8% NPAT increase over the same period.

Suncorp is a more diversified financial institution than QBE and Insurance Australia Group (ASX: IAG) but also pays the highest dividend, currently around 4.3% fully franked. In addition to impressive growth margins and return for shareholders, the company has managed to sell most of its ‘bad bank’ debt and will integrate the remaining amounts into other departments before the end of the financial year. This follows the Goldman Sachs (NYSE: GS) purchase of over $1.6 billion of the debt earlier this month.

Insurance premiums are set to rise in coming years and Australia’s position as an underinsured country, when compared to other developed nations, means that Suncorp has a bright future ahead of it. In recent months, investors’ expectations have weighed in on the value of the stock and had pushed it price to earnings too high, but with a 6% drop in its share price this week, its current P/E of around 21 isn’t looking so bad after all.

Foolish takeaway

If you’re looking for long term growth and a healthy dividend, then Suncorp could present you with a very sunny upside. Its growth performance and solid management decisions in the past year have given it a great foundation for long-term growth. Keep this one on your watchlist, because if it drops any further it’ll definitely be worth a closer look.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.

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