If the continuous rise of share prices in Australia's big banks has taught us anything, it's that Australian investors love finance companies, especially when they pay generous dividends (with franking, of course!).
And despite the S&P/ASX200 Index (INDEXASX: XJO) riding near multi-year highs, it's possible the current low interest rate environment will send these favourite dividend stocks even higher.
Macquarie Group Ltd (ASX: MQG) has been one the best-performing ASX bank stock over the past three years, climbing over 130% before dividends. One of the reasons Macquarie's share price and earnings have risen so strongly is its global exposure. In fact, around 68% of its income was sourced outside Australia and New Zealand in FY14. As our largest investment bank it will benefit from the rise of M&A activity and rising global equity markets.
Westpac Banking Corp (ASX: WBC) is on the other side of the spectrum. It focuses its attention on the domestic mortgage market to drive cash earnings higher. This has proven to be a great strategy over the past two decades as property prices soared. It now controls around 23% of the market.
However, Westpac is tipped by analysts to grow earnings per share at a very slow pace in coming years and given its higher-than-usual share price, when interest rates rise, it could come under intense selling pressure. What's more, the benefit the bank recently derived from falling interest rates (that is, lower provisions for bad debts) appears to have already been recognised.
Cash Converters International Ltd (ASX: CCV) and Money3 Corporation Ltd (ASX: MNY) are two companies which will continue to benefit from increasing confidence, even if interest rates rise or fall.
Both companies are growing earnings through their payday loans businesses which can be accessed by customers at any one of their branches or online. The loans are generally small and short term but applicants can sometimes take them without security. The companies apply very high interest rates to these loans to make them profitable. For example, on the Cash Converters website, a 12-month $1,000 loan has a comparison rate of 152.03%.
Both Money3 and Cash Converters have an expanding branch network and analysts are anticipating strong earnings per share growth in coming years. In addition they are tipped to pay a 3.7% and 4.2% fully franked dividend, respectively.
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Of the four companies I think Westpac is expensive and Macquarie stands to benefit from rising investor confidence, but I couldn't stomach buying its stock in the middle of a bull market. Both Money3 and Cash Converters are good buys at today's prices, in my opinion.
