The best high dividend blue chip stock on the ASX

Where’s an investor looking for decent, fairly safe and cheap dividend yields expected to go these days?

The big four banks have been in high demand, as investors chase their juicy, fully franked yields, and despite been sold off in the last two days, all of them are still paying fully franked dividend yields above 5%.

But given the concerns we have with their high valuations (and it’s not just us – Bell Potter’s Charlie Aitken has also recently changed his view) and their highly leveraged exposure to the housing market, rising unemployment and Australia’s economy, we don’t see the banks as a great place for those seeking nice dividends at their current prices.

Retail giants Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES), which owns Coles, Kmart, Target, Bunnings and Officeworks, both look expensive on P/E ratios of around 20. And their dividend yields have fallen as their share prices have risen – Woolies is yielding less than 4% currently, while Wesfarmers is slightly ahead at 4.5%.

Macquarie Group Ltd (ASX: MQG) could also be another contender, with analysts expecting the investment bank to pay a dividend of around $2.64 this financial year. That places the company on a prospective dividend yield of 4.6%, but that is lower than the yield expected from the big four banks this year.

Telstra Corporation Ltd (ASX: TLS), Australia’s dominant telco, is still paying a fully franked dividend yield of 5.5% at the current price of $5.21, and has the potential to increase dividends in the years ahead. On that basis, we could certainly add Telstra to our short list for the best high dividend, blue chip stock on the ASX.

But the winner is Insurance Australia Group (ASX: IAG). The company is expected to pay a fully franked dividend of around 35 to 36 cents over the next two years, giving shareholders a lovely 7% yield. And despite a large market share of the insurance business in Australia and New Zealand, IAG is also trading on a fairly cheap P/E ratio of between 10 and 12.

Foolish takeaway

Seemingly on the nose with investors, Insurance Australia Group looks to be the perfect contrarian play for those looking for fully franked decent dividends from a high quality blue chip ASX stock.

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Motley Fool writer/analyst Mike King owns shares in Telstra Corporation. You can follow Mike on Twitter @TMFKinga

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