Unlike its four big brothers (or sisters?) in the banking sector, the Suncorp Group Ltd (ASX: SUN) share price has not lit any fires this year, and is today trading around the $13.53 mark, which represents a 9.2% rise YTD so far. Ok, so that's not so bad. But consider that the Australia and New Zealand Banking Group (ASX: ANZ) share price is up nearly 20% for the year, it seems like Suncorp shares have been punished for not being dragged through the mud at the Royal Commission last year.
So is this overlooked bank a buy on current prices? Especially for its (grossed up) 7.7% dividend yield?
Lets take a look at Suncorp
So Suncorp actually has a pretty interesting history – it started life out as three separate companies: the Queensland State Government Insurance Office, the Queensland Industry Development Corporation and Metway Bank. The first two companies were owned by the Government of Queensland and Metway used to be a building society. All three were progressively merged (and privatised) in the 1990s and morphed into the Suncorp we know today.
Unlike the other banks, Suncorp derives a significant proportion of its earnings from its insurance arms. You may know many of them – GIO, AAMI and APIA for example. Out of the $1.06 billion Suncorp reported in net profit after taxes last year, $739 million came from its insurance arm. This makes Suncorp a different play in the financial sector, and I personally think this is a big advantage to a 'Big Four' bank. The insurance market behaves in a very different manner to retail banking products like mortgages, and with many insurance products (like third-party motor vehicle insurance) being compulsory, Suncorp has something of a branding firewall in this sector.
Still, the first half results for 2019 were not very exciting: cash earnings were down 12.5% from the previous year and net profit after tax down 44.7%. Suncorp has said this has mostly resulted from higher-than-expected payouts from natural disasters and other unforeseen events, so it will be an interesting area to keep your eye on over the rest of 2019.
Foolish Takeaway
Suncorp could be a good option to diversify into the financial sector. The grossed-up dividend of 7.7% is a tempting lure for Suncorp, but the company's payout ratio is sitting at 81.4%, which is a little high for my liking. I personally would wait for Suncorp's full-year results in August to see if this revenue slide is a temporary one before making an investment.
