Mortgage Choice’s dividend yield improves

Mortgage broker delivers solid full-year results.

Mortgage Choice (ASX: MOC) last week announced it would pay a 7 cents per share final dividend, taking the financial year total to 13 cents, representing a yield of 5.2% fully franked. The payout is the same as for financial year 2012; however the yield is lower due to the rally in the share price over the past 12 months.

Since reporting FY12 results, the company’s share price has risen nearly 90% to $2.50, as activity in Australia’s housing sector picks up due to record low interest rates.

The low rates are a key driver for Mortgage Choice, as cash profits increased by 5% to $15.8 million in FY13 from FY12. While maintaining the same market share of all new home loans of 4.6%, Mortgage Choice achieved revenue growth of 6% and total loan book growth of 5.8% to $47.7 billion.

Group CEO Michel Russell was pleased with the results and optimistic about the coming year. Mr Russell noted that the company has room to grow through its diversified businesses, and financial planning arm Mortgage Choice Financial Planning.

The company also owns LoanKit, a mortgage aggregator which supplies tool and services to rival mortgage businesses. However Mr Russell announced that the company had agreed to sell the division, allowing the company to focus on its core business, website, and financial planning divisions., which compares homeloans for consumers, reported strong revenue and cash NPAT growth of 33% and 61% respectively. The division currently only accounts for 2.5% of group revenue, something which the company hopes to grow.

Finally, the Mortgage Choice Financial Planning division has recruited 11 financial planners during the financial year and generated revenues of $113 million, or 0.6% of group revenue. While it is early days for the financial planning side of the business, the company hopes that its differentiated offering will help it to achieve market share growth in the next 12 months.

Foolish takeaway

Mortgage choice is a solid business with a number of tailwinds in the coming 12 months. Record low interest rates are driving interest in the residential property market, the company’s large and sustainable dividend yield will attract investors, and the group is diversifying revenue through a financial planning business and a growing home loan comparison website. If Mortgage Choice can maintain marketshare and build the smaller divisions of the business, shareholders should be handsomely rewarded with strong capital and dividend payout growth.

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Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned in this article.

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