Suncorp Group Ltd (ASX: SUN) wouldn’t usually be considered a “high growth” ASX company, but its recent share price chart would say otherwise.
Earlier this week, the insurance and banking provider released its FY21 result which was well received by the market. There have been some other winners in the financials space, including the Commonwealth Bank of Australia (ASX: CBA) which also recently reported.
Some haven’t been as lucky. Insurance Australia Group Ltd (ASX: IAG) had a tough FY21, which you can read about here.
Suncorp results recap
Suncorp managed to grow its profit after tax by 42.4% to $547 million. Part of this was due to gross written premiums rising by 5.5% to $8.79 billion, as well as investment income rising 25.8% to $390 million.
The company will be returning a large portion of its profits back to its shareholders. Its ordinary dividend will be increased 83.3% to $0.66 per share. It’ll also be returning some capital in form of a share buyback of up to $250 million, which will give earnings per share (EPS) a boost in the short term.
https://education.rask.com.au/2020/09/30/what-is-a-share-buy-back-and-how-does-it-work/
Suncorp had previously put away a large sum of cash to provision for loan defaults. But thanks to favourable economic conditions, it was able to release $60 million in provisions which helped boost its banking division’s profit 69% to $419 million for the year.
What will drive Suncorp’s shares higher?
The above results highlight the effect the macroenvironment has on Suncorp’s profitability and therefore its potential dividend and share price.
Suncorp invests part of the premiums it collects and earns investment income. If global interest rates are low, Suncorp will struggle to make significant investment returns.
Similarly in its banking division, Suncorp will be able to issue more loans when the market sentiment is high. Luckily, things look like they’ve been improving here in Australia recently.
As you can see, there are quite a few things that need to align for companies like Suncorp to perform optimally. This isn’t to say it won’t do well, but there are other ASX shares that have less dependence on variables out of their control.
If you’re after ASX dividend shares, click here for some more ideas.
Also, if you want to become a better investor, I’d highly recommend signing up for a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.
