Why Suncorp Group Ltd's 5.2% dividend could solve your income needs

Suncorp Group Ltd (ASX:SUN) is due to report its full year results on Thursday. Here are three things to look out for and help you decide whether to make an investment.

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Earnings season is well and truly underway and one key result that I am waiting for this week comes from insurance giant Suncorp Group Ltd (ASX: SUN).

When it reports its full year results on Thursday it will be the first of Australia's big insurers to report. As well as revealing its own performance during the second half, it may just give us a hint of what's to come from its rivals QBE Insurance Group Ltd (ASX: QBE) and Insurance Australia Group Ltd (ASX: IAG).

Here are three things to look out for when it reports:

According to CommSec the market is expecting Suncorp to deliver net profit after tax of $497.5 million for the period, which will mean full year net profit after tax of $1,027.5 million. Although this will be a drop of around 9.3% from FY 2015, it will be a big improvement on its half year profit which was down 16%. It is worth remembering also that last year the insurer produced stellar earnings growth of 55%, which was always going to be difficult to build on.

One key ratio for insurers is the insurance trading result (ITR) ratio. The ITR ratio is a measure of profitability which takes the underwriting result plus investment income and expresses it as a percentage of net earned premium. Suncorp's CEO Michael Cameron has set a medium-term ITR ratio target of 12%. In the first half the ITR ratio dropped to a disappointing 10.1%, so I'll be looking for a big improvement here.

Analysts are expecting Suncorp to pay a final dividend of 40.6 cents, bringing its full year payout to 70.6 cents per share. At the current share price this would imply a trailing fully franked dividend of 5.2%.

Although this isn't the strongest yield available on the market, I expect Suncorp to begin growing its earnings and dividend again in FY 2017 after making key changes to its operating model. In the current low interest environment this would make Suncorp a great option for income investors in my opinion.

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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