Spotlight on financial services: AMP Limited, IOOF Holdings Limited and SFG AUST FPO

These 3 stocks provide not just solid dividends but potentially good growth as well.

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It鈥檚 no secret that the compulsory superannuation system in Australia has led to an explosion in the size and depth of the financial services industry. While it is often the fund managers and their levels of funds under management (FUM) that get the attention, what is less widely discussed is the need for distribution channels to secure these funds.

This is where financial planners come in. As the competition amongst both large fund managers such as Platinum Asset Management Limited (ASX: PTM) and the multitude of smaller fundies such as K2 Asset Management Holdings Ltd (ASX: KAM) increases, coupled with both the growth in superannuation and rise in self-managed super funds, then the demands on financial advisors is likely to increase in importance.

AMP Limited (ASX: AMP), IOOF Holdings Limited (ASX: IFL) and SFG AUST FPO (ASX: SFW) are three financial services firms that collectively account for a significant share of distribution in Australia through their network of financial advisors.

The size of these networks provide important scale advantages to each firm and the stickiness of their respective client bases creates high levels of recurring revenues. As such investors in these three stocks should not only enjoy the potential for long-term growth in demand for financial advice services, but importantly for income-seeking investors, the recurring revenue bases provide for sustainable fully franked dividend yields as well..

Foolish takeaway

Currently, AMP is trading on a forecast dividend yield of 4.9%, IOOF on a yield of 6.2% and SFG on a yield of 4%. AMP鈥檚 insurance division is more volatile compared with the enduring earnings power of its funds management and financial advice divisions, for this reason income-seeking investors may be drawn to the more stable earnings base of IOOF. Meanwhile investors seeking a combination of both yield and growth may be more attracted to the smaller SFW Australia given its higher potential to benefit from further consolidation within the fragmented financial planning industry.

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

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