Insurance, banking and superannuation business Suncorp Group Ltd (ASX: SUN) is the largest general insurer of Australians by gross written premium and Australia's leading regional bank serving more than one million personal, agribusiness, and commercial banking customers. Selling for $13.47 it trades on 17.6 times projected earnings with a fully franked 5.1% dividend yield.
The attractive fully franked dividend is what makes Suncorp appealing to many investors and with Thomson Consensus estimates forecasting earnings per share and dividends to grow steadily out to 2016, investors buying today will be locking in a steady income stream. Analysts forecast dividends per share of 85.2 cents for 2015 placing it on a forward yield of 6.32% at today's prices.
Intelligent investors with an eye for the future look to buy businesses with competitive advantages that allow a business to outperform its peers. Suncorp's sheer scale, brand power, and ability to cross-sell products mean it's unlikely to ever be squeezed out of its core insurance and banking markets.
It's true that the general insurance business has seen some tough times, and the group recently announced a $500 million writedown of intangible assets related to worse-than-expected policy lapses and future claims assumptions in its life insurance business. However, as a review of future assumptions this will have no impact on cash earnings or dividends due to be announced when the group reports full-year results on August 20.
The group is expecting to derive cost-cutting or simplification benefits of $225 million in the 2015 financial year and $265 million in the 2016 financial year. The restructuring benefits if implemented should be permanent and allow the group to drive profits higher long into the future.
While the bottom line growth will benefit from the major restructuring being implemented, the top line growth is expected to come as both the insurance and banking business grow with the economy. Mortgage lending growth has been increasing, while the value of insured assets grows and the company grows market share in regions like New Zealand.
Of course Suncorp faces competition from the likes of Insurance Australia Group Limited (ASX: IAG) and QBE Insurance Group Ltd (ASX: QBE), but given the improved outlook and consistent income Suncorp remains an appealing holding for income-focused investors.
