Bank stock yields and financial sector ETFs (XLF, IYF, IYG, IXG, VFH)

Includes: IXG, IYF, IYG, VFH, XLF
by: Roger Nusbaum

This is a good article from Marketwatch about the dividends that banks pay out these days. The focus of the article is that there are a lot of bank stocks that have a yield that is competitive with the yield on ten year treasuries, writes Roger Nusbaum.

It can be very worthwhile to look at stocks (as an asset class) in this way. Most of the banks mentioned yield about 4%, same as the ten year bond. It is a good bet that none of those banks will run the risk of disappearing soon either.

One asset class pays you 4% and returns your money in ten years. The other assets class pays the same 4%, but what would you think any of those banks would be worth in ten years? We all know that stocks average 10% per year. Assuming a 5% average return for ten years, instead of just getting your money back after ten years you'd have another 62% on top of your principal.

If you don't need the money for a specific purpose in the next ten years, what choice would you make? This is a just a sniff test. I would not just pick any old 4% yielder but there are several very good candidates out there.

If you can find one or two you can feel comfortable with I think they would be better than holding a financial sector ETF.

I found five financial sector ETFs. Here are the tickers and their respective yields.
XLF 2.27%
IYF 1.95%
IYG 2.06
IXG 1.39%
VFH 2.60%

The financial sector is one where there are often very good, safe dividends available. To me, it makes sense to find one of the high yielding stocks that has a good track record of out performing the sector. You should do some research to satisfy yourself that the outperformance can continue.