5 finance stocks with excellent dividend yields

Australia’s financial services industry is a lucrative one. From the big banks down to specialist brokers and research houses, many have carved out a tidy profit from the sector.

Here are five ASX-listed financials which you can fill your watchlists with and, if the price is right, fill your portfolio with.

1. Macquarie Group Ltd (ASX: MQG) is our biggest investment bank with its presence extending far beyond Australia and New Zealand. In fact, it derived 68% of its income from foreign markets in FY14, with Asia and North America showing great results. At current prices, Macquarie could prove to be a good buy, however, due to the cyclical nature of fund managers and investment banks’ earnings, now mightn’t be the best time to buy-in. Analysts expect a 5% full-year dividend in the next 12 months.

2. Challenger Ltd (ASX: CGF) is a leading provider of annuities (long-term fixed income securities) to retirees. It also has a growing funds management business. With burgeoning amounts of funds entering superannuation and the number of Australians retiring each year set to increase rapidly, Challenger’s products will be in demand for many years. It is forecast to pay a 3% unfranked dividend in the year ahead.

3. Mortgage Choice Limited (ASX: MOC) is a diversified financial services company which is taking a holistic approach to personal finance. It is doing so by offering everything from home loans to financial planning and business lending to insurance. With interest rates falling, demand for its services has been growing strongly and recently the company upgraded its full-year profit guidance. It is forecast to pay a 4.6% dividend in the coming year.

4. Ozforex Group Ltd (ASX: OFX) is, as the name suggests, a foreign exchange provider for individuals and businesses. With the recently listed company aiming to take market share away from the big banks through both low-cost offerings and superior customer service, it appears to have a bright future ahead. Although it’s forecast to pay only a 2.1% fully franked dividend, analysts and investors are expecting both earnings and payouts to increase strongly over time.

5. Bentham IMF Ltd (ASX: IMF) isn’t your stereotypical finance company. It funds litigation for cases which exceed $5 million in value and has a very good track record. Unfortunately, due to the nature of legal settlements, earnings can be lumpy and will fall inside, or outside, of reporting periods and make the process of accurately forecasting earnings or dividends very difficult, if not impossible. However, as its historic performance suggests, it’s the long term that counts. With the number of cases and joint venture partners growing, as well as increased geographical diversification, it appears to have a bright future ahead.

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Each of these companies could present compelling buying opportunities. However I think now is not the time for long-term investors to buy fund managers or mortgage brokers such Macquarie, Challenger and Mortgage Choice. My pick of the bunch is Bentham IMF. However, with “lumpy” earnings, its dividend leaves much to be desired for investors wanting a regular income stream.

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