Suncorp (SUN) is primed to dish out another $300 million in special dividends to its shareholders in the second half of 2013-14, says CIMB Securities.
In a broker note to clients today, CIMB said Suncorp would be able to reward its investors with a higher one-off return this financial year because of the substantial excess capital being generated.
The broker estimates excess capital will rise to $1.1 billion by the end of 2013-14, driven by a $228 million increase in organic capital and a $102 million capital release following the offloading of the non-core banking division.
The special dividend would be nearly 17% ahead of last year’s special dividend of 20 cents per share. That special distribution, along with Suncorp’s regular dividends, had opened up an opportunity for investors to get an effective yield of 14% over 13 months.
Industry experts who didn’t want to be named told Eureka Report that excess capital has become a widespread issue for many blue-chip companies as management has become more conservative post the Global Financial Crisis, focusing on lower gearing and less funding towards capital expenditure and acquisitions.
Special dividends are becoming an increasingly popular way for these companies to release this capital in a piecemeal fashion because they require less than a buy-back and more flexibility to take on acquisitions if opportunities arise.
CIMB Securities has an “outperform” rating on Suncorp with a price target of $13.52.