When it comes to dividend stocks, many Australian investors prefer to go with the usual names like National Australia Bank Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC).
However now more than ever, with the share prices of bank stocks hitting new highs, it is essential investors don't become overexposed to the sector.
Indeed the current share price of both banks, places them on demanding valuations. For example, NAB and Westpac currently boast price to tangible book values of 1.84 and 2.73 respectively.
Banks make money from their loan book and as a result it is much more appropriate to price them off their tangible book value than P/E ratios, which is how other financial commentary sometimes values them.
It's also important to remind ourselves that past performance is not a guarantee of future success. In fact far from it. Usually once a share price has run hard without sustainable book value or earnings per share growth to back it up, it's best to avoid them and wait for the price to retreat.
Here are three ASX stocks I'd buy before the big banks…
- Sky Network Television Ltd (ASX: SKT) is New Zealand's more successful version of Foxtel. It has huge residential penetration rates, which affords it a wide and growing economic moat. Although the payout doesn't offer franking credits, it boasts a 5.2% yield at today's share price.
- Credit Corp Group Limited (ASX: CCP) is Australia's leading receivables management company which has recently begun an expansion into the US. Although its overseas venture will take time to bear fruit, it's also busy pursuing growth into areas in the domestic market. It yields a 4.2% fully franked dividend.
- Super Retail Group Ltd (ASX: SUL) is the owner of BCF Boating Fishing and Camping, Supercheap Auto, Ray's Outdoors and more. The economy's recent transition away from the mining sector has driven poor results from the group's leisure retailing businesses and its share price has fallen hard. However, at today's price it yields a hefty 5.2% fully franked dividend and looks an appealing prospect moving forward.
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