If there has been one takeaway for investors in the past few years, it's surely been that the term "blue chip" is used far too casually.
Consider this.
In financial year (FY) 2015 Woolworths Limited (ASX: WOW) paid an interim dividend of 67 cents per share (cps). The interim dividend in FY 2016 was sliced to 44 cps!
Meanwhile, the BHP Billiton Limited (ASX: BHP) interim dividend in FY 2015 was a record 80.8 cps; the interim in FY 2016 was just 21.4 cps!
Investors now know that just having "blue chip" status doesn't guarantee a dependable dividend.
In fact, a case can be made that a diversified portfolio of smaller capitalisation (cap) stocks could actually provide a better dividend stream for income-seeking investors.
Mortgage Choice Limited (ASX: MOC) is a leading independent mortgage broker with a solid operating history. While it would be fair to suggest that buying into a mortgage broker at this stage of the real estate cycle is not for the risk averse, the group's trailing mortgage book does provide some protection.
Those investors game enough to own the stock will be attracted to the historic dividend yield of 7.9% fully franked. Importantly, Mortgage Choice actually increased its last interim dividend and half year profit grew 12% on the prior corresponding period (pcp).
Collection House Limited (ASX: CLH) could be set to enjoy a tailwind if the much talked about tightening credit cycle comes to the fore. As one of Australia's leading debt collectors, Collection House should stand to benefit from an increase in bad debt provisioning by bank and corporate clients.
While it was disappointing that the group's interim dividend was cut to 3.9 cps from 4.4 cps in the pcp and based on analyst consensus estimates the final dividend will be cut from 4.7 cps to 4 cps, the good news is that analysts are forecasting the dividend to resume growth in FY 2017 to 8.8 cps. Based on the FY 2017 forecast, Collection House's fully franked yield is 6.6%. (source: CommSec)
Thorn Group Ltd (ASX: TGA) operates the Radio Rentals retail store brand, but its niche is really in the financing of its sales, not the retailing. The leasing and small loan sector has been under somewhat of a regulatory cloud recently, but Thorn looks relatively well placed to successfully navigate through the current environment.
Thorn is forecast to maintain its dividend at 11.5 cps in FY 2016 and then grow it to 13 cps in FY 2017, implying a fully franked forward yield of 9.8%. (source: CommSec).
