3 reasons I think the Suncorp Group Ltd share price is in the buy zone

With three major insurers listed on the ASX to choose from, I think Australian investors are spoilt for choice.

But deciding which of them to invest in can be tricky. At this point in time I think the Suncorp Group Ltd (ASX: SUN) share price is the best value of the lot and would choose it ahead of the rest. Here’s why:

Better value

Suncorp’s shares are currently changing hands at approximately 15x estimated FY 2017 earnings. Whereas the shares of rivals QBE Insurance Group Ltd (ASX: QBE) and Insurance Australia Group Ltd (ASX: IAG) are priced at 18x and 17x FY 2017 earnings, respectively. At these prices I see little upside potential for its rivals.

Huge dividend yield

Of the three insurers Suncorp provides the most generous dividend yield. At present its shares provide a trailing fully franked 5.3% dividend, compared to a partially franked 4.2% dividend from QBE Insurance and a fully franked 4.3% dividend from Insurance Australia. Not only is Suncorp’s dividend greater than its peers, but it also smashes the market average.

Positive outlook

All three insurers have reasonably positive outlooks, especially with rates rising in the United States. But thanks to its new operating model and the potential acquisition of Tower Limited (Australia) (ASX: TWR), I wouldn’t be surprised to see Suncorp outperform its peers. The new operating model has already had a positive impact on its underlying insurance trading ratio. Suncorp’s ITR rose from 10.1% to 11% during the first-half of FY 2017. Pleasingly management believes it is now on a path to 12%.

Foolish takeaway

All in all I think Suncorp is one of the better options on the market right now for income investors. Its relatively cheap price, generous dividend, and positive outlook make it a great buy and hold investment option in my opinion.

As well as Suncorp I think this hot dividend share is one of the best options for income investors on the ASX right now.

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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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