Why Discover Financial Services Is An Interesting Dividend Play

For many investors, companies that offer very good yields, and decent dividend growth rates over time, are often pigeon-holed into a bucket of securities one might think of as "unsexy."

Whether utilities players come to mind, or decades-old telecommunications giants, companies offering relatively high dividend yields tend to display characteristics which are loved by risk-averse investors who would prefer a safe place to put their money for long periods of time, while enjoying a decent income stream.

With a company like Discover Financial Services (NYSE:DFS), investors are able to gain exposure to a growth niche in the financial services space (namely, credit care lending to Middle America), with a decent, but growing, dividend yield.

As I've written about in the past, for serious long term investors, buying a dividend security with prospects for continued significant dividend growth over time should be the goal, rather than focusing on the company which happens to have the best yield today.

In that regard, Discover is an excellent option, considering the credit card lender has increased its dividend on average by 10.7% the past four years on earnings growth and continued improvement in the long term outlook for niche lending in this current low interest rate environment.

In the financial services space, buying a company like Discover allows investors to take advantage of low capital requirements relative to its larger peers, a higher-yield portfolio than its peers (mostly credit card lines of credit), thus enjoying a substantially higher return on equity than that of its peers.

Invest wisely, my friends.