Westpac, Rio Tinto and Bank of Queensland Limited: Should you buy?

With interest rates low and tipped to continue falling, now is a better time than ever to be thinking about positioning your portfolio to benefit from the juicy fully franked dividend yields on offer in the Australian stock market.

Westpac Banking Corp (ASX: WBC), Bank of Queensland Limited (ASX: BOQ) and Rio Tinto Limited (ASX: RIO) are three S&P/ASX200 Index (ASX: XJO) (INDEXASX: XJO) stocks with generous dividend yields and strong brand recognition. But are they a buy today? Here’s what you need to know.

Rio Tinto

As Australia’s largest iron ore miner, Rio has recently been punished by the market following steep falls in the commodity’s spot price (it fell from above $US135 per tonne in December 2013 to below $US93 per tonne in June 2014). However Rio has a lot to offer investors in the ultra-long term and now could be an opportunity which many savvy investors have been waiting for.

Bank of Queensland

BOQ is busy growing its presence outside the Sunshine state into both New South Wales and Victoria. The $4.4 billion bank is looking to increase its exposure in both business and retail banking without sacrificing its margins. If management can double its exposure to mortgage brokers, it’s likely it’ll achieve its FY15 goal of growing retail assets at more than 1.2 times the current amount.

Westpac Banking Corp

With Australia’s second largest mortgage portfolio and 12 million customers, Westpac has a number of advantages of new and existing competitors. With a focus on wealth management products (including Superannuation) and Asia, management will be hoping they can drive earnings high enough to justify the bank’s seemingly excessive valuation.

Buy, Hold or Sell?

I think Rio Tinto is a buy at current prices, given its long-term potential and cheap share price. Westpac, in my opinion, is overvalued and investors who want a “safe” stock with a generous dividend yield would be advised against buying the stock at its current price. Lastly, BOQ does have its appeal to investors who want both income and growth but, once again, I’d rather buy bank shares when credit growth is non-existent and share prices drop (as they did during the GFC). Until then, it’s unlikely I’ll add any Australian bank stock to my portfolio.

However, there is one growing financial stock listed one the ASX, which trades cheap and pays an excellent 7% grossed-up dividend which I'll consider adding to my portfolio, before any of the above three stocks! Our top analyst recently dubbed it, "The Motley Fool's Top Dividend Stock For 2014 - 2015". You can get the name and code of this 'ultra-promising story stock' FREE in our new investment report. Just click here to download your free copy of "The Motley Fool's Top Dividend Stock for 2014-2015" today.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

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