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3 blue chips with big dividend yields

Credit: Simon Cunningham

The Australian share market indexes are dominated by the weight of the big four banks of 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).

Long-term shareholders of the banks have done well. However, growth has slowed down. Indeed, Commonwealth Bank reported that profit had gone backwards in its latest quarterly result. The slowdown in the housing market and extremely high household debt levels are causing problems.

Many investors are drawn the big bank dividend yields, but I think these blue chips are much better options for income:

Insurance Australia Group Ltd (ASX: IAG)

IAG is Australia’s largest insurance company with its multi-brand approach. Some of its brands include NRMA Insurance, CGU, SGIO, SGIC, Swann Insurance and WFI (Australia).

The company has Warren Buffett’s Berkshire Hathaway’s tick of approval, with it being a substantial shareholder.

IAG could become increasingly profitable as data & analysis get even better and the Australian population increases. Insurance is a competitive yet necessary industry for households. The company is doing a good job of growing margins.

It’s currently trading with a grossed-up dividend yield of 5.8%.

Macquarie Group Ltd (ASX: MQG)

Macquarie is Australia’s leading investment bank, with a majority of its earnings generated overseas. The bank has completely turned itself around since the GFC and is now focusing on non-cyclical lines of business such as asset management.

The bank is recognised as a world leader in infrastructure management. This is a good thing because infrastructure spending is likely to boom over the coming years in Australia, the US and Asia. If Macquarie can win its fair share of that business then it could keep growing at a good rate compared to its big bank peers.

Macquarie is trading with a partially franked dividend yield of around 5.7%.

Sydney Airport Holdings Ltd (ASX: SYD)

Sydney Airport Holdings is the operator of Australia’s busiest airport. The globally-known city is attracting a lot of visitors, tourists and students to the harbour. Every month the company reports how much the number of international passengers has grown.

By March 2018 the number of international passengers had grown by 6.2% in the year-to-date figures. If this continues Sydney Airport is likely to report another pleasing set of growth figures in its annual report.

It’s currently trading with an unfranked dividend yield of 4.8%.

Foolish takeaway

All three shares aren’t trading cheaply. If I had to pick one I’d go for Macquarie because I like the bank’s new focus on infrastructure and renewable energy investment. Over 10 years both of these segments should experience pleasing growth.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited. The Motley Fool Australia owns shares of Insurance Australia Group Limited and 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 Scott Phillips.

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