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Is Wesfarmers Ltd a better bet than the banks?

What: More information has come to light on persistent rumours that Coles, owned by Wesfarmers Ltd (ASX: WES), is planning a move deeper into financial services.

So what: According to a report in the Australian Financial Review (AFR) Coles has pulled together a ‘Strategy Team’ to work on confidential projects including a digital wallet. Like its competitor, Woolworths Limited (ASX: WOW), Coles already offers credit cards and has a rapidly expanding insurance offering, however there are expectations that the group has its eyes on entering the banking sector.

Now what: Coles is believed to be taking its lead from UK-based retailers such as Tesco which already take deposits and issue personal loans with rumours continuing to circulate that Coles has applied to APRA for a banking license which would allow it to also take deposits and issue loans.

With a network of nearly 800 stores and literally millions of customers coming through its doors each week, the potential for Coles to take market share from the likes of Commonwealth Bank of Australia (ASX: CBA) and its banking peers would appear very real.

 

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While the banks still offer attractive yields, investors are becoming increasingly concerned that they are fundamentally overvalued. Wesfarmers meanwhile look a much safer bet particularly given its opportunities for growth however even Wesfarmers doesn't appear as good a bet as The Motley Fool's top dividend stock for 2014 which offers growing sales, accelerating profits and a grossed up dividend yield of 7%! Find out the name and code right now -- your copy of "The Motley Fool's Top Dividend Stock for 2014" is FREE. Simply click here!

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

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