One dividend share I'd buy before the big banks

Is Super Retail Group Limited (ASX:SUL) a better opportunity than the big banks?

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Investors are often drawn to 'Big 4' banks like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) for both growth and dividends. It's true, our big banks have had a great run of growing profits, and Commbank currently pays a 5.8% fully-franked dividend. Why would you look elsewhere?

Particularly since I'm about to suggest that you consider owning shares of Super Retail Group Ltd (ASX: SUL) instead. It also pays a 5.8% dividend. And it's a retailer. Ugh. Everybody knows that all retailers are doomed once Amazon enters Australia…don't they?

Still, there are plenty of reasons to consider owning Super Retail Group over, say, Commbank.

  • Diversified sources of earnings (multiple businesses including automotive parts, leisure, sporting goods, and apparel). Contrast this with the banks which derive a huge amount of income just from home loans.
  • Products add value to customers. Unlike the big banks' wealth management and even credit card and home loan offers, which are demonstrably worse than those on offer from competitors.
  • Quality management and less regulatory uncertainty. You don't have to worry about Super Retail permitting money laundering through its ATMs. That's because it hasn't got any ATMs, but still the company is not vulnerable to regulation in the way that the banks are.
  • Ability to grow further. Super Retail is not expected to be a fast-grower, but the company does have opportunity to expand via new outlets and new products. Further banking growth from here is partly reliant on people taking on even more debt, which seems unlikely.

Sure, Amazon is a threat. But customers can already buy anything they like online from eBay for attractive prices. Super Retail has a strong track record of thriving in the face of competition, and the company is well established and proactively managed.

One key risk is that Super Retail is exposed to many of the same forces that will hurt the banks. If the economy plunges, interest rates rise, or the housing market collapses, Super Retail will likely see a plunge in sales and profits.

Thus, an investor in Super Retail is vulnerable in the same way that bank investors are vulnerable if the economy turns down. As a result, you shouldn't consider your portfolio diversified if you own these businesses.

Motley Fool contributor Sean O'Neill has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Super Retail Group 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.

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