As I've written extensively in recent times, I'm not that keen on Medibank Private Ltd (ASX: MPL) at today's prices. It's a good business, and the kind of business I'd like to own, but it is priced too richly for me given some of the issues it faces.
Here are two dividend companies I'd prefer to buy instead of Medibank at today's prices:
Thorn Group Ltd (ASX: TGA)
This small-cap financial company has its own challenges, with a regulatory investigation against it, as well as changes to the Small Account Credit Contract (SACC) laws which will impact the profitability of Thorn's core Radio Rentals business over the next couple of years.
Now that's not the kind of company that should scream 'Buy Me' to investors, but the potential impacts appear well and truly baked into Thorn's shares, which are priced at 8 times this year's estimated earnings per share (according to Reuters data). Factor in a 7.5% fully franked dividend and Thorn appears to be a decent opportunity at today's prices given its current efforts to lift productivity alongside market share.
Vocus Group Ltd (ASX: VOC)
Vocus is another company where dividend investors might have to overcome their innate scepticism, given that the company just cut its dividend in its most recent results. However, the company continues to grow its services organically, with underlying corporate and wholesale sales rising 8% during the half. Management also reported that Vocus's market share of the national broadband network (NBN) market is growing, up from 6.4% to 7.8%.
Dividends were down due to one-off costs associated with acquisitions. Yet over the next few years as cost savings from the M2, Nextgen and Amcom acquisitions are realised and the company's NBN business matures, Vocus should be able to pay out larger dividends. This should lead to a proportionately greater yield (in % terms) at today's prices.
