With the ASX having fallen by 3% since the turn of the year, it may feel as though investing in stocks is not a great way to boost your wealth. After all, 2014 was only slightly better for Aussie investors, since the ASX posted a gain of just 1%. As a result, keeping your money in cash since New Year's Eve 2013 would have been a better move than buying shares when it comes to capital gains.
Of course, a number of stocks have performed much worse than the ASX this year. For example, diversified financial company Suncorp Group Ltd (ASX: SUN) has fallen by 7% since the turn of the year, while Insurance Australia Group Ltd (ASX: IAG) is down by an even greater amount – minus 10% — over the same time period.
Looking ahead, though, both companies have high total return potential. For starters, they both offer exceptionally high yields which are above and beyond the ASX's yield of 4.6%. In Suncorp's case, it yields 6.3% partly as a result of its recent share price fall but mainly because it has increased dividends per share at an annualised rate of 16.8% during the last five years. And, with dividends being covered over 1.1 times by profit at the present time, they appear to be sustainable.
Similarly, IAG has a yield of 5.2%, with its shareholder payouts rising at an annualised rate of 17.4% during the last five years. Its dividends are covered 1.4 times by profit, which gives it considerable scope to increase them even if profit growth disappoints over the short to medium term.
With the RBA likely to reduce interest payments, such high yields could prove to be highly useful for income-seeking investors. However, judging by the ASX's poor performance in the last two years (as mentioned earlier), dividends could prove to be the major source of return for all investors moving forward.
Meanwhile, Suncorp and IAG appear to have sound strategies to stimulate bottom line growth over the medium to long term. In Suncorp's case it is adopting an optimisation strategy which is set to deliver savings of around $170m over the next three years. Likewise, IAG is seeking to grow its exposure to the lucrative Asian economy, where insurance product penetration is set to rise in the coming years. And, with the integration of the business unit purchased from Wesfarmers progressing in-line with expectations, its medium to long term earnings growth prospects appear to be sound.
With Suncorp and IAG trading on price to earnings (P/E) ratios of 14.3 and 14.6 respectively, there is upward rerating potential, especially since the ASX has a P/E ratio of 15.9. And, with their betas of 0.9 and 0.6 respectively indicating that they could offer a reduced volatility shareholder experience, both Suncorp and IAG appear to be well-worth buying for the long run.
