2 solid dividend shares I like with an above average yield

The Australian share market has a very generous average dividend yield of 4.8%, far and away ahead of the United States with its average yield of 4.4% on the S&P 500 index.

When thinking about investing for income, often the Big Four banks and mining companies like BHP Billiton Limited (ASX: BHP) and Santos Ltd (ASX: STO) will spring to mind, but outside of these companies, there are still some high quality blue-chip shares that pay above average dividends.

Two shares that I like at the moment are IOOF Holdings Limited (ASX: IFL) and Insurance Australia Group Ltd (ASX: IAG).

IOOF Holdings is an Australian financial service provider that currently yields a fully-franked dividend of 6.9%. What is perhaps even better is that analysts expect this to grow at 8.3% per annum for the next few years. With the same analysts anticipating the company to grow its earnings by over 22% per annum during the same period, this dividend growth can easily be supported.

After a disappointing performance in the last fiscal year, IOOF Holdings looks like it is back on the right path now. I believe the company’s portfolio of high-quality investment and advice platforms should help grow earnings and provide share price gains for investors.

Elsewhere, Insurance Australia Group is, as the name indicates, a general insurance provider in Australia and New Zealand. It too pays a fully-franked dividend, this time yielding 5.5%. Insurance is a tricky industry to be in, but the business is well diversified between personal and commercial insurance, as well as geographically which should help reduce its risk.

Approximately 22% of its business comes from New Zealand, which means that its earnings will be subject to any fluctuations between the Australian dollar and the New Zealand dollar. Thankfully in the last 12 months the Kiwi has weakened only by around 2%, which shouldn’t have too big an effect on earnings. In its latest economic report Westpac Banking Corp (ASX: WBC) forecast little change in the exchange rate through to 2017.

While analysts don’t believe its earnings will grow by a great deal in the next few years its shares have taken such a hammering in the last 12 months that it looks very cheap in comparison to its peers. Insurance Group Australia is trading at 13.6 times earnings, compared to NIB Holdings Limited (ASX: NHF) and QBE Insurance Group Ltd (ASX: QBE) which trade at 19 and 16 times earnings, respectively.

Foolish takeaway

It can pay to look beyond the traditional banks and mining shares when looking for income. I believe these two shares provide income investors with an above average yield that will continue to grow in the future.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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