Do you know how your stockbroker is incentivised?
If they're paid commissions for the amount of trades you make, think seriously about whether they are, or are not, truly acting in your best interests.
I am a qualified financial planner and mortgage broker and have friends who are stockbrokers. And I can't help but shudder when I hear them recommending CFDs, iron ore stocks, gold stocks and even the big banks to their clients. At today's prices, I'm keeping as far away from each of them as possible.
Take for example Westpac Banking Corp (ASX: WBC) which trades at a price to tangible book ratio of 2.77 times, yet is forecast to grow earnings per share at less than 2% per year until 2017, according to Morningstar. That's despite bad debts falling rapidly in the low interest rate environment. Sure, the 5.5% dividend looks good but the potential for capital losses in the medium term is very real.
The same can be said for National Australia Bank Ltd. (ASX: NAB) which at today's price of $32.39, boasts a 6.1% fully franked dividend. NAB is accident prone, has lacklustre profitability and a large portfolio of bad debts yet trades at 1.85 times its tangible book value per share. If you're a buyer today, you'll have a very minimal margin of safety, if any.
2 dividend stocks I'd buy first
I'll be the first to admit, it can be hard to plough thousands of dollars into a small-cap company which doesn't have the reputation of the big four banks, supermarkets or Telstra. But sharemarket investing is best done without letting your emotions dictate.
For example, investors who overlooked Collection House Limited (ASX: CLH) last year because it was too small have missed out the 20% share price gains and a 5% fully franked dividend. The debt collection firm has experienced fantastic growth over the past five years and grown its dividend payout every year. Today it boasts a yield of 4.1% fully franked and analysts are forecasting strong growth in the near term.
Collins Foods Ltd (ASX: CKF) is the owner and operator of selected KFC stores throughout Australia. Whilst its recent results have been hindered by its struggling Sizzler chain, the company is actively taking steps to improve the business, like rebranding its stores as 'Get Refreshed'. With a 4.6% fully franked dividend and trading at just 13 times earnings and slightly more than book value, it appears priced to buy.
