The Commonwealth Bank (ASX: CBA) is one of the most widely owned stocks by Australian investors. The bank is currently priced with a forecast dividend yield of 4.97% based on data from Morningstar of analyst consensus forecasts for financial year (FY) 2014 of 384 cents per share (cps) in dividends.
The Commonwealth Bank's yield is appealing – particularly compared to the interest savers may receive from depositing their money in a bank account. However, with the Commonwealth Bank trading on a forecast price-to-earnings (PE) ratio of 15.6, there are arguably other financial stocks which not only offer a higher yield, but are also more attractively priced from a valuation perspective.
1) IOOF (ASX: IFL) is forecast to pay 46.1 cps in dividends. With the share price currently at $8.97, the stock is trading on a forecast dividend yield of 5.14%. Although the forecast PE is 17.1, the potential for earnings to grow at a faster rate arguably justifies this premium.
2) Bank of Queensland (ASX: BOQ) is forecast to pay dividends totaling 64.5 cps in FY 2014. With the share price at $12.09, the forecast yield is 5.33% and the forecast PE is 13.7.
3) Bendigo and Adelaide Bank (ASX: BEN) is forecast to pay 65 cps in dividends to shareholders. At its current share price of $11.65 this implies a forecast yield of 5.58%, meanwhile the forecast PE ratio is significantly lower than many of its peers at 12.7.
4) AMP (ASX: AMP) is forecast to pay a dividend of 24.2 cps in FY 2014. With the shares currently trading at $4.40 – which is not far from their 52-week low of $4.16 – the forecast yield is an appealing 5.5%. The forecast PE also looks appealing at 12.8.
Foolish takeaway
Earnings growth may continue to elude many companies in the New Year. Some investors will choose to search further afield amongst smaller companies which offer stronger growth prospects and potentially higher capital gains. Other investors who place a high emphasis on a consistent stream of dividends may look to adjust their portfolio into higher yielding stocks instead.
