Australians are in love with fully franked dividends. The finance industry makes a lot of money from Australia’s growing economy and booming property market.
I don’t think it’s a good idea to fill your portfolio with companies exposed to the same issues. Investing a lot of your capital in Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) is not diversified.
Here are three alternatives to the big four banks from the finance industry with big dividends:
Mortgage Choice Limited (ASX: MOC)
Mortgage Choice is one of the biggest loan brokers in Australia. It generates significant money from the upfront and trailing commissions for the loans it brokers.
Mortgage brokers are a good way to get exposure to a growing loan book but without the huge capital risk of writing the loans.
Mortgage Choice is trading at 15x FY16’s earnings with a grossed-up dividend yield of 10.30%.
Bank of Queensland Limited (ASX: BOQ)
Bank of Queensland (BOQ) is one of the biggest regional banks of Australia. It has been diversifying away from the Queensland economy in recent years, although it still has a majority of its business focused in the sunshine state.
BOQ has been marketing itself as a friendlier and more personalised experience than the big four banks. This approach appears to be somewhat working as the business is growing its retail operations around the country.
It’s currently trading at 13x FY17’s estimated earnings with a grossed-up dividend yield of 8.94%.
Suncorp Group Ltd (ASX: SUN)
Suncorp has a banking business and a huge insurance division with brands like AAMI, Bingle and Terri Scheer in its stable.
It’s one of the most diversified blue-chip finance stocks in Australia and could keep growing as its insurance division grows.
Suncorp is currently trading at 17x FY17’s estimated earnings with a grossed-up dividend yield of 7.04%.
All three of these finance stocks do have impressive dividends but I don’t think they have much growth on offer, which is why I wouldn’t buy them at today’s prices unless you’re solely looking for a large source of income from a finance stock.
5 stocks under $5
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Motley Fool contributor Tristan Harrison has no position in any stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. 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.