4 Financial Dividend Giants Set For A Recovery

Includes: AB, AI, CIM, IVR
by: Leonid Kanopka

Recently Financials have been very shaky and extremely risky. However, if we learned anything from March 2009, it is that strong financial stocks can make a very big recovery. Two examples are: General Growth Properties (GGP), which went from $0.46 to $13 (2,726% upside) or iStar Financial Inc. (SFI), which went from $0.75 to $6 (700%).

I am a firm believer in investing for income, hence these heavy dividend picks; also, I have a big appetite for risk. The combination of risk (of investing in the financial sector) and hefty dividends are a deadly combination for exponential gains. Below are four stocks in the financial sector that pay a hefty dividend and are currently trading near their 52-week lows.

Alliance Bernstein Holding L.P (NYSE:AB) is an investment firm that provides research, diversified investment management and related services to a range of clients. It also provides distribution, shareholder servicing and administrative services. It offers a range of investment products and services to its clients, which include Institutional Services, Retail Services, Private Client Services and Bernstein Research Services. The current market price is $13.27 with a one-year analyst price target of $14.11. This represents a 6.33% upside potential not including its $0.26 quarterly dividend yielding 7.7%. AB has a 90% dividend payout ratio, and has a 5-year average of paying 6.80%. Based on trailing P/E, AB currently trades at a 36% discount to its Inv Mgmt & Fund Operators Industry peers. Also, AB is down 45% from its 52-week high of $24.2. I love the fact that this company has no debt on its books and its book value is $16.79 (26.53% upside potential). Despite its discounted price, Alliance Bernstein Holding is outperforming its industry peers in nearly every category:



Qtrly Rev Growth (yoy)






Operating Margin






Market turmoil has put pressure on the company's assets under management in recent months, but third-quarter earnings were up 77% as the fund manager sharply improved operating margins. Overall this is a great position at this price, and with dividend yield in excess of 7% makes AB a real winner.

Arlington Asset Investment Corp. (NYSE:AI) is a principal investment firm that acquires mortgage-related and other assets. The Company acquires, on a leveraged basis, residential mortgage-backed securities (MBS), either issued by a United States Government agency, or guaranteed as to principal and interest by United States Government agencies or United States Government-sponsored entities (agency-backed MBS). The Company also acquires MBS issued by private organizations (private label MBS). The current market price is $20.95 with a one-year analyst price target of $27.57. This represents a 31.6% upside potential not including its $0.875 quarterly dividend yielding a whopping 17%. Arlington Asset Investment Corp. has a dividend payout ratio of 146.00%, and a 5-year average yiled of 28.90%. AI's 4.8 forward P/E is at the low end of its 5-year range (lowest 4.3 to highest 54.1), and is currently trading 35.8% below its 52-week high. AI shares are currently trading 10.9% below their 50-day moving average of $22.70, and 24.6% below their 200-day moving average of $26.84. The fact that this stock has so much downward pressure has opened the door to great opportunities for both growth and income. Also, analyst recommendations of AI trend toward “Strong Buy.”

Invesco Mortgage Capital Inc (NYSE:IVR) focuses on investing in, financing and managing residential and commercial mortgage-backed securities and mortgage loans. The current market price is $16.10 (up 17.18% since I last wrote about it here) with a one-year analyst price target of $17.25 (7.14% upside potential). IRV is offering about $0.80 per share in a quarterly dividend. The past four payments have been $0.97, $1, $0.97, and $0.8 respectively, resulting in a 20.20% dividend yield and a payout ratio of 98.00%. This means you could potentially recover 100% of your money back in a little over four years via dividends alone. The trend of hefty dividends does not seem to be fading anytime soon; of the 27 firms within the Mortgage REITs subsector that have reported debt-to-capital, IVR is among the 17 companies whose balance sheets are free of long-term debt. This represents a good cash position for future investments and dividend payments. If there was ever a time to buy IVR it would be now. IVR's current forward PEG of 0.1 represents a 96% discount to its Mortgage REITs subsector average. Also, based on Trailing P/E, IVR currently trades at a 54% discount to its Mortgage REITs subsector peers. I strongly endorse this position and feel the current market price provides a great opportunity for steady dividend income and growth.

Chimera Investment Corporation (NYSE:CIM) is a specialty finance company that invests, either directly or indirectly through its subsidiaries, in residential mortgage-backed securities (NASDAQ:RMBS), residential mortgage loans, commercial mortgage loans, real estate-related securities and various other asset classes. The current market price is $2.67 with a one-year analyst price target of $2.86. This represents a 7.12% upside potential, but does not include its hefty quarterly dividend of $0.13 yielding 19.48% yearly. CIM's current dividend payout ratio is 116.00%. Chimera Investment’s net margin (trailing 4 quarters) of 60.1% is substantially above the Specialty Financials Industry average of 12.4%. Even with its net margin, CIM's current forward PEG of 0.8 represents a 35% discount to its Specialty Financials Industry average and its trailing P/E of 4.6 represents a 60% discount. Chimera is trading 40% below its 52-week high and seems to have found its “new low.” I like the fact that the housing market is showing signs of recovery which allows for REITs like this one to thrive in 2012. CIM has positive net income of $555.28M and EPS of 0.55 compared to the industry average of 0.43. Also revenue is $614.10M compared with the industry average of $74.13M. While the stock is so low, this is the perfect opportunity to get in and enjoy its huge dividend payment.

Disclosure: I am long SFI, GGP.