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Where is the Suncorp Group Ltd share price heading?

The share price of banking and insurance company Suncorp Group Ltd (ASX: SUN) has put in a credible performance over the past 12 months with the stock only slightly underperforming the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) with a return of minus 6%, compared with the index’s return of minus 2%.

That may not sound great, but when considered in the context of financial service peers such as Insurance Australia Group Ltd (ASX: IAG) and Australia and New Zealand Banking Group (ASX: ANZ) whose share prices are down 12% and 14% respectively, the 6% drop starts to look pretty good!

While the past year has seen the stock underperform, there is one big reason why this bancassurance giant could find investor support in the coming year – its dividend yield.

While its yield alone may temp investors there are in fact a number of positive attributes to Suncorp…

  • Suncorp owns a suite of well-known financial service brands including AAMIO, GIO, Vero, Suncorp Bank and Suncorp Insurance
  • The company has a market capitalisation of around $17 billion
  • Suncorp holds $96 billion in group assets and has 9 million customers
  • The group has a particularly strong presence in the personal insurance market along the eastern seaboard of approximately 30%
  • The group aims to produce efficiency-led profit growth, above system growth in key markets, and a multi-brand, multi-channel approach which leverages the group’s large customer base

…but back to that dividend yield

Suncorp’s dividend promise to shareholders is to provide a pay-out ratio of between 60% and 80% and return any surplus capital.

Last financial year (FY) the group paid out dividends totalling 76 cents per share (cps) but pleasingly for shareholders the dividend is forecast to rise to 86 cps in FY 2016. With the share price trading around the $13.50 mark, this forecast implies that the stock today is expected to yield an attractive 6.3% fully franked.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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