The financial sector is a somewhat broad sector, although many of the industries within the sectors tend to move together. In the last twelve months, the Financial Select Sector SPDR ETF (NYSE: XLF) increased 32%. This compared to an increase of 25% of the S&P 500 index. On a year to date basis, the sector is flat on the year.
Here is the performance of the major stocks within the industry:
Financial stocks can offer great opportunities for dividend investors. Financials will benefit from rising interest rate expectations and a steeper yield curve. The sector offers the least expensive valuation of any sector in the S&P 500, trading at a mere 13.5 price/earnings multiple. Financials also benefit from positive loan growth, which should occur this year.
In addition, it is the sector that has the most sensitivity to higher interest rates. While multiples have increased for most of these stocks since the election, many are trading at a substantial discount to the market. Deregulation could create potential earnings per share upside for the entire sector.
We peruse our list of Top 100 Dividend Stocks along with favoring those stocks that a part of our model portfolio of 29 stocks. Within the list above, here is our favored dividend firms within the financial industry:
|Bank of Nova Scotia||BNS||3.7%|
|T. Rowe Price||TROW||3.2%|
|Principal Financial Group||PFG||3.2%|
|Discover Financial Services||DFS||1.7%|
T. Rowe Price Group Inc (NYSE: TROW) is a global provider of investment management services. The stock is down around 5% in the past twelve months and the worst performer year to date. Although the firm saw a bump in share price after the election, its share took a hit after the company reported its fourth quarter earnings. Although profits increased, the firm's share price dropped on increase investor withdrawals. Long term investment performance remains impressive and the firm's balance sheet remains solid with $1.9 billion in cash. Shares of T. Rowe Price trade at 13 times earnings. T. Rowe Price offers a healthy dividend for investors. The stock currently offers a dividend yield of about 3.2%. For over 30 years, the company has been boosting its dividend every year. With the double digit price decline, the stock offers one of the more attractive options for investors seeking new investments within the sector. It is our favorite stock for the next eleven months.
Bank of Nova Scotia (NYSE: BNS) is a Canada-based bank that also trades on the NYSE. Unlike the financial sector as a whole, Bank of Nova Scotia has surged in the last twelve months, with nearly a 50% increase. The stock currently trades at 11 times its future earnings estimates. Investing in Canadian banks is appealing to many investors. For investors interested in the Canadian banking industry, the iShares MSCI Canada Index ETF (NYSE: EWC) may also be considered. Not only has the bank seen excellent performance, but it also offers a great dividend yield, at around 3.7%. Dividends were enhanced to $2.88 versus $2.72 the previous year. As a Canadian stock, its business operations, as well as its ADR share prices in the U.S., are affected by currency fluctuations.
Invesco Ltd. (NYSE: IVZ) is an investment management company based in Atlanta. The company has under-performed the sector during the last twelve months, as it has declined about 3%. Last week, Invesco released its fourth quarter financial results. Although the company beat estimates and reported higher profits, the stock price has continued to decline. Invesco currently trades at 11 times earnings. Despite the company's sluggish performance, it offers a great dividend yield for investors. Invesco currently offers a dividend yield of approximately 3.9%, which is in-line with its peers in the investment management industry. It is likely that the stock's dividend will increase during its next dividend announcement in April.
Metlife Inc (NYSE: MET) is a New York City based insurance and annuity provider. The stock has increased 22% in the last year, which is in-line with its sector ETF: iShares Dow Jones US Insurance Index ETF (NYSE: IAK). Following the election, MetLife's share price jumped, as the company is expected to benefit from less regulation. Currently, Metlife shares trade at 9 times earnings. Metlife currently offers a dividend yield of about 3%. In 2013, the company switched from paying an annual dividend to quarterly payouts. Since the adjustment, Metlife has been increasing its dividend every year.
Prudential Financial Inc (NYSE: PRU) is a New Jersey-based financial services company that offers financial and insurance products. The stock is up about 50% in the last twelve months, outperforming both its industry and the market. Based on its future earnings estimates, Prudential shares trade at 9.5 times earnings. Currently, Prudential Financial pays a dividend yield of approximately 2.7%. The stock has paid a quarterly dividend of $0.70 since late 2015.
Principal Financial Group Inc (NYSE: PFG) is a Iowa-based investment management firm. The stock is up over 50% in the last twelve months, as it continues to see strong revenue increases and higher assets-under-management. The stock is currently trading at 11 times its earnings. In addition to its strong performance, Principal offers investors a great dividend yield, of 3.2%. The firm switched from an annual dividend payment to quarterly payouts in 2012. Since the change to quarterly payouts, Principal has been consistently boosting its dividend.
Progressive Corp (NYSE: PGR) is a Ohio-based insurance company. In the last twelve months, Progressive's share price has increased 20%. This is in-line with its industry ETF: iShares Dow Jones US Insurance Index ETF, which is up about 25% in the same time period. Progressive currently trades at 16 times its future earnings estimates. Last week, Progressive reported better than expected financial results. The stock currently offers a dividend yield of about 1.8%. It pays its dividend on an annual and slightly inconsistent basis. The company declares its annual dividend every December. Most recently, Progressive paid a dividend of $0.6808.
JP Morgan Chase & Co. (NYSE: JPM) is a New York City based financial services company. In the last twelve months, the stock is up over 40%, which outperforms the market and the financial industry. The firm currently trades at 11 times earnings. The company currently pays a dividend yield of approximately 2.3%. Like many of the other "big banks," JPM was forced to cut its dividend after the financial crisis in 2009. At the time, the bank slashed its quarterly dividend from $0.38 to $0.05. In 2011, the company began building its payout back up. It has been increasing its dividend every year.
Travelers Companies Inc (NYSE: TRV) is a Minnesota-based insurance company. The stock is up 10% in the last twelve months, which underperformed the market. Shares of Travelers trade at 12 times its earnings estimates. The stock has increased since the election, but has seen sluggish performance over the last few weeks. Last week, Travelers reported better than expected earnings. The company currently offers a dividend yield of approximately 2.3%. Additionally, Travelers has been boosting its dividend annually since 2009.
KeyCorp (NYSE: KEY) is a regional bank in the Ohio area. The stock is up over 60% in the last twelve months, which outperforms its larger peers in the financial sector. Investors interested in regional banks may also consider the SPDR KBW Regional Banking ETF (NYSE: KRE), which is up over 50% during the same time period. KeyCorp is currently trading at 12 times earnings. As for its dividend, KeyCorp currently offers a dividend yield of approximately 1.9%, which is slightly below the average yield for money center banks. Over the last few years, KeyCorp has been increasing its quarterly dividend by about $0.01. Key offers one of the best growth profiles of any regional bank along with a sound acquisition strategy. Although the stock has advanced substantially since the election, we feel the bank offer the best value within the banking sector.
Chubb Ltd (NYSE: CB) is a Switzerland-based financial services and insurance company. The stock is up about 17% in the last twelve months, which is below the overall market. The company reported earnings yesterday, citing higher profits despite larger claims. Chubb currently trades at 12 times its future earnings estimates. Chubb's dividend is quite impressive. The company currently offers a dividend yield just over 2%, but has been increasing its dividend every year for over 50 years (since 1966). We expect Chubb to declare its next dividend later this month.
Discover Financial Services (NYSE: DFS) is a provider of banking and credit card services. The stock is up over 50% in the last twelve months and currently trades at 10 times its future earnings. For investors seeking an alternative to investing in this stock, but are interested in payment services, the PureFunds ISE Mobile Payments ETF (NYSE: IPAY) may be a good option. The company's current dividend, which yields at 1.7%, is slightly below average. However, Discover has been committed to raising its dividend every year since 2011.
Disclosure: I am/we are long KEY, TROW.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.