With the big four banks facing increasing pressure on earnings, it's clear that investors need to diversify their holdings beyond the usual suspects.
These three large financial companies could be worthy alternatives, offering potential growth, relative safety as well as growing dividends over the long-term.
Macquarie Group Ltd (ASX: MQG) continues to morph its business and its now primarily an asset manager, whether it be infrastructure funds or leasing businesses as we outlined earlier this month. At the current share price of $77.48, Macquarie is trading on a P/E of ~12x and paying a dividend yield of around 5%, partly franked. With a diversified revenue stream and offshore earnings, Macquarie is less risky than the big four banks if Australia falls into a recession.
Challenger Ltd (ASX: CGF) is a diversified financial services company with more than $57 billion of assets under management. However, the company is also one of the largest providers of annuities in Australia. An annuity is a regular series of payments in retirement, usually with rates of return fixed at the start of the annuity. More Australians could be forced to use annuities in retirement to stop retirees spending all their super and then falling back onto the pension system. That would be great news for Challenger. The company currently pays a 3.3% fully franked dividend yield.
IOOF Holdings Limited (ASX: IFL) is also a diversified financial services company, offering a 5.9% fully franked dividend yield – that's 8.4% grossed up. The company has funds management and wealth management divisions and also offers estate planning and trustee services among others. IOOF reported its results earlier today and earnings were fairly stable – something retirees and SMSF trustees will appreciate. Today's 3.1% fall in the share price as the market opened may offer an opportunity.
