The shares of diversified financial company Suncorp Group Ltd (ASX: SUN) are currently providing a fully-franked dividend that yields 6.8% and I feel it could be just too good to miss out on right now.
To put this in perspective, a dividend yield of 6.8% is a full 2.1% greater than the current market average of 4.7%. This opportunity has been brought about due to a steep drop in share price of around 20% in the last 12 months.
The share price took a tumble in December when the new chief executive Michael Cameron announced that the insurance trading ratio (a key measure of profitability for insurers) would fall to 10% for the half year of fiscal 2016 due to an unexpectedly high increase in claims.
This would prove to be quite a drop down from the 14.7% level in the company's full year fiscal 2015 results just six month earlier. As the general insurance segment accounts for 61% of its net profit after tax, it is clear to see why the market reacted as it did. For this reason, should the insurance trading ratio drop further I would anticipate the share price to drop along with it. Mr Cameron has stated his belief that this will not occur, but of course has no control over what Mother Nature brings us.
Further compounding this is the general market volatility we have witnessed so far this year. This dragged the share price down to a new 52-week low, leaving it at a considerable discount to a number of its peers. Suncorp's shares are trading on a price-to-earnings ratio of 13.2, compared with Insurance Australia Group Ltd (ASX: IAG) and NIB Holdings Limited (ASX: NHF), which are trading at 14 and 20x earnings, respectively.
Mr Cameron still believes that the targeted 12% insurance trading ratio is achievable in the future despite the pressures of heightened levels of competition trying to steal market share away from Suncorp. Together with its other brands AAMI and GIO, I believe Suncorp is well positioned to achieve this should Australia and New Zealand stay clear of any major catastrophes.
Foolish takeaway
At present, according to CommSec, the shares of Suncorp have three buy recommendations and one hold recommendation from the four analysts that cover the shares. This, along with its strong dividend and the predicted earnings per share growth of 7% per annum through to 2018 could be a sign that now is a good time to consider an investment in Suncorp.
