Which Of The 10 Best-Yielding S&P 500 Financial Companies Is Most Attractive To Dividend Investors?

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Includes: AVB, CINF, HCBK, HCN, HCP, KIM, PBCT, VNO, VTR, WFC
by: Arie Goren

The financial sector is a mediocre performer so far in 2013; the total return, year to date (04/25/2013) was 10.7% while the appreciation of the S&P 500 index in the same period was 11.86%. Nevertheless, there are profitable companies that pay rich dividends among the financial companies.

Stock Sectors' Total Returns, Year to Date, are shown in the chart below:

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Source: finviz.com

In this article, I tried to determine which of the 10 best-yielding S&P 500 financial companies is the most attractive for dividend-seeking investors.

I consider that besides dividend yield, the consistency and the rate of raising dividend payments are the most important factors for dividend-seeking investors. Of course, it is also essential that a company has enough earnings growth prospects to maintain increasing dividend payments.

The 10 stocks are: People's United Financial Inc (NASDAQ:PBCT), Health Care REIT Inc. (NYSE:HCN), HCP Inc (NYSE:HCP), Hudson City Bancorp Inc (NASDAQ:HCBK), Kimco Realty Corp (NYSE:KIM), Ventas Inc. (NYSE:VTR), Vornado Realty Trust (NYSE:VNO), Cincinnati Financial Corp (NASDAQ:CINF), AvalonBay Communities Inc. (NYSE:AVB) and Wells Fargo & Co (NYSE:WFC). All the data for this article were taken from Yahoo Finance and finviz.com on April 25, before the market open.

The table and the charts below present the 10 financial companies, their last price, the market cap, the forward annual dividend rate, the forward yield, the payout ratio and the average annual dividend rate of growth for the past 10 years.

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The charts above emphasize the consistency of raising dividend payments during the last 10 years. The chart clearly shows that the PBCT, HCBK, CINF and WFC have raised their payouts at a much higher rate than the other financial companies in the last 10 years.

The charts below present the trailing P/E, forward P/E and the average annual earnings growth estimates for the next five years, the price-to-sales ratio and the price to book value of the 10 companies.

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Discussion

Among the 10 companies, the PBCT, HCBK, CINF and WFC have raised their payouts at a much higher rate. Companies that regularly increase dividends are generally more stable. Increasing dividends is the assurance that dividend income retains its purchasing power over time. HCBK and CINF have a high forward P/E; 20.70 and 22.33, and their average annual earnings growth estimates for the next five years is quite low at 4.00% and 2.49%. The PBCT and WFC stocks look much better with respect to their P/E ratio and their earnings growth prospects.

The table and the charts below show the most important parameters for dividend-seeking investors for these two companies.

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WFC Dividend Chart

WFC Dividend Yield Chart

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Chart: finviz.com

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Chart: finviz.com

Which of the two companies is the most attractive for dividend-seeking investors? It is not easy to determine. PBCT has a higher dividend yield of 4.87%, and the average annual dividend rate of growth for the past 10 years was also higher at 7.70%, but its trailing and forward P/E and its PEG ratio are much higher.

Conclusion

In my opinion, both PBCT and WFC are quite attractive, and are the best choice among the best-yielding S&P 500 financial companies I reviewed for dividend-seeking investors, due to their solid yield and good earnings and dividend growth prospects.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.