The insurer and banker Suncorp Group Ltd (ASX: SUN) is getting more attention for its moves to change the company and build up excess capital. After a heavy spate of damage claims from natural disasters in 2011, several years without similar catastrophic events have given it some breathing space.
The company has now amassed about $1.2 billion in capital above its conservative operating targets. It also announced that it is considering returning surplus capital to shareholders.
In the meantime, it raised the interim dividend 40% to 35 cents per share to show how current finances and earnings growth going forward are improving.
The broker Morgans wrote in a recent "high conviction ideas" note that it expects Suncorp to pay a 20 cps special dividend in August. That could be followed by more in the next financial year depending on whether it achieves advanced accreditation in regards to Basel III regulatory capital rules.
In the same note Insurance Australia Group Limited (ASX: IAG) is expected to achieve low premium growth by Morgans' analysts.
Suncorp's banking division has been re-worked to clear bad-debt issues, which turned around its operating earnings dramatically. At a time when banking stocks are going up, the value of the company's banking business has improved. It does not plan to sell it, although there was media talk that it could fetch a better price now in this stronger business environment.
Suncorp's greater earnings diversity is attractive to the broker. Earnings improvement with a possible special dividend could make the stock an attractive buy.
Its stock is up about 60% in the last two years and is offering a 5.2% dividend yield. It hit a 52-week high of $13.75 in November 2013. Currently it's $12.68 and has a PE of 15.
Foolish takeaway
I would prefer Suncorp because of the earnings growth potential as well as the opportunity of higher dividends in the near future. QBE Insurance Group Ltd (ASX: QBE) is considering selling its US underwriting business to improve its North American division's performance, yet that will take some time to complete and adjust for.
Suncorp is further down the restructuring track and will see benefits sooner.
