When it comes to investing, the importance of dividends is often overlooked. However, a company paying a decent yield not only offers investors an income, but is also likely heading in the right direction and could offer decent value for money at its current price.
Indeed, dividend yields and the income potential of shares could become even more important for Aussie investors. While interest rates are low right now, they could move even lower and this could stimulate demand for income-producing shares.
With this in mind, here are three banks that offer top notch yields and, as a result, could be worth buying.
Westpac Banking Corp
With a fat, fully franked yield of 5.5%, Westpac Banking Corp (ASX: WBC) certainly appeals as an income play. Furthermore, the bank has a strong track record of dividend growth, with dividends per share rising at an annualised rate of 9.5% over the last 10 years.
While shares in Westpac have disappointed of late, having tracked the ASX to fall by 2.9% during the last three months, they now offer better value as a result. With a P/E ratio of 13.6 (versus 15.1 for the wider market) and an annualised rate of earnings growth of 4.9% pencilled in for the next two years, Westpac could prove to be a strong income stock for which demand increases over the medium term.
Suncorp Group Ltd
A major concern for investors in Suncorp Group Ltd (ASX: SUN) is the fact that dividends paid to shareholders currently exceed earnings. Clearly, this is unsustainable in the long run and, pleasingly, Suncorp is taking steps to move its finances onto a more stable footing.
This means a cut in dividends per share, but with earnings set to grow by 90.4% from FY 2014 to FY 2016, the cut still means that Suncorp could be yielding 6.5% in FY 2016 (assuming a constant share price).
Furthermore, shares seem to offer good relative value for money right now; having a price to book ratio of 1.31 versus 1.71 for the wider sector. As such, they could prove to be a sound income and value play moving forward.
Macquarie Group Ltd
Shares in Macquarie Group Ltd (ASX: MQG) have outperformed the ASX during 2014, with the diversified financial services firm seeing its share price rise by 3% while the ASX is down 1%.
This relative strength could continue over the medium term as Macquarie is forecast to grow earnings by 7.8% per annum over the next two years. Alongside this growth, the company is expected to cut dividends per share so as to improve the company's dividend coverage ratio to around 1.3 times in FY 2016.
Despite this, shares in Macquarie are still expected to yield a partially franked 5.6% in FY 2016, meaning they continue to have considerable income as well as growth appeal.
