Should you buy Thorn Group Ltd for its MONSTER dividend?

Thorn Group Ltd (ASX:TGA) pays a strong dividend that rivals the big four banks. But is it a buy?

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When it comes to dividends it's hard to beat the incredible fully franked yields on offer from Australia and New Zealand Banking Group (ASX: ANZ) and the rest of the big four banks.

But one share flying under the radar that is a match for the banks is Radio Rentals operator and business finance company Thorn Group Ltd (ASX: TGA). Its shares are expected to provide investors with a fully franked 6.4% dividend in FY 2017 according to CommSec.

Part of the reason its shares are providing such a generous yield is because they are changing hands at just 9x full year earnings.

This is largely the result of investor concerns over regulatory risks that hang over the company. Earlier this year management advised that ASIC had found several possible breaches of its responsible lending obligations during 2012 and 2015.

Whilst the company has helped affected customers and advised that the amounts were not material, it is unclear whether ASIC will impose any further penalties on Thorn Group.

The good news though is that it has dropped the consumer loans business, so once the matter is resolved fully it should be full steam ahead for Thorn Group.

In light of this I believe the company has become a more appealing investment option, especially after it also sold its debt collection business to Credit Corp Group Limited (ASX: CCP). This will allow the company to focus on its two key segments: consumer leasing and business finance.

Pleasingly management appears confident that the change of focus will help the company return to growth after a reasonably mixed performance in FY 2016.

However, although things are looking positive I would still hold off an investment at this point. With its interim results due to be released within the next week or two, I think it would be prudent to wait and see if business is improving before making an investment.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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