Calling all income investors: How does a 12.1% dividend sound?

It's time to take a look at the smaller end of the market for income

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With share prices of the big four banks soaring (well, apart from today of course), their dividend yields don't look so juicy anymore. As I wrote earlier today, investors should look outside the top 20 stocks for quality, high dividend yielding stocks.

For one, they are overlooked by other investors and their prices may be much cheaper. And secondly, some of these companies are offering whopping fully franked dividend yields of over 6%. When markets are down like the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is today, knowing those lovely dividends will still flow into your account is a nice feeling.

Without further ado, here are 3 stocks for your watchlist…

Homeloans Limited (ASX: HOM) provides a wide range of home loans (No kidding) as well as  insurance products. In the last half year, the company reported a rise in adjusted net profit from $2.7 in the first six months of 2013 to $3.5 million in the second half. Lending volumes were up 12.4% and the company established a wholesale funding arrangement with major shareholder Macquarie Group Ltd (ASX: MQG). Homeloans is currently paying a delicious fully franked dividend of 7.6%.

MyState Limited (ASX: MYS) is another diversified financial services group, paying a fully franked dividend yield of 6.1%. Interestingly, the company provides the majority of its banking and other services to customers in Tasmania and mainly coastal regions of Queensland. With a price to book ratio of 1.4, MyState is far cheaper than any of the big four banks to boot.

Clime Investment Management Limited (ASX: CIW) is an investment manager, with around $527 million of funds under management. The company reported a strong half to December 2013 and declared a fully franked dividend of 2.5 cents per share. The company also paid an 8 cent capital return last year, annualised, that equates to 12.1%, partly franked. There's no certainty that the company will pay another capital return this year.

Our number 1 dividend stock – FREE!

All of these companies are worthy of a spot in savvy long-term investors' portfolios. My high-risk pick of the bunch is Clime, but for those more risk-averse investors Homeloans stands out.

NOTE: The original article suggested that Clime paid a 12.1% fully franked dividend. That was incorrect, and the actual 'real' annualised dividend yield is around 6.3% fully franked – which is still decent.  

I'd like to thank my data provider S&P CapitalIQ for that misleading information.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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