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Is this forgotten ASX bank a buy?

With four out of the six top spots in the ASX 200 (and five out of the top ten), ASX banking shares are on every Aussie investor’s radar. Even if you don’t own one, your superannuation fund probably does. The ‘Big Four’ banks are worth a combined $395 billion and all of them pay out a fully franked dividend yield above 5%. But if you’re looking for ASX banking exposure, you don’t have to stop there.

Enter Suncorp Group Ltd (ASX: SUN)

Suncorp might be somewhat of an under-appreciated ASX bank. Despite its ‘tiny’ market cap of $18 billion, Suncorp offers retail banking services (mortgages, credit cards, term deposits and savings accounts) as well as a large stable of insurance offerings. You may know some of Suncorp’s insurance businesses like GIO, AAMI and APIA.

Suncorp also offers a 5.02% dividend yield at current prices (7.17% grossed-up), which doesn’t include the proposed special 39 cents per share dividend that the company announced last week. This yield is amongst the higher end of the ASX at the current time and is only a stone’s throw from what the bigger banks like Commonwealth Bank of Australia (ASX: CBA) are paying out.

Although Suncorp can be considered a banking company, its latest results (for the 2019 financial year) tell us that the company made $588 million in profits after tax from its insurance businesses and $364 million from banking. Unlike the big four, Suncorp’s earnings derive from a less concentrated base and are spread out over a wider range of economic sectors. This makes Suncorp (in my opinion) a good stock to consider for a more diversified financial exposure. If there is a property market crisis, Suncorp is likely to fair a lot better than Commonwealth Bank or Westpac Banking Corp (ASX: WBC), for instance.

A massive tailwind for Suncorp’s insurance businesses is that compulsory third-party motor insurance is mandatory for anyone wanting to register a motor vehicle in Australia – and Suncorp is the largest provider of this service. The value of public policy like this to a company cannot be overstated – the government close-to guarantees a customer base for Suncorp to work with. Unless this policy changes (very unlikely), it will continue to provide a strong bedrock for the company for the foreseeable future.

Foolish Takeaway

With a trailing price-to-earnings ratio of 20.8, Suncorp shares are looking a little pricey on today’s quotes. I do like Suncorp as a business (and for the yield to boot), but for me to consider an investment, I would like to see the share price take a bit of a hit before buying in.

I'd rather have a look at this ASX bank stock instead!

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Motley Fool contributor Sebastian Bowen has no position in any of the 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 Scott Phillips.

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