Income for investors from smaller firms.
Decades ago, big banks were thought the safest bet in town for long-term investors looking for income. The large names with established relationships with their customers were pretty much a sure thing for reliable dividends each quarter. Thanks to the financial crisis, however, all that changed. Regulations mandating a bigger cash cushion for financial companies made it harder to pay generous dividends. Some firms like Bank of America Corp. (NYSE: BAC) and Citigroup (C) still haven’t recovered, with their share price and dividend payments still well below 2008 levels. But investors may be surprised to find a bunch of smaller financial companies weathered the downturn just fine, and are actually delivering pretty good income.
Apollo Global Management (APO)
Apollo is not a household name, but the private equity investment firm has connections to many companies you’ll recognize. The firm owned or invested in Chuck E. Cheese restaurants, security firm ADT Corp. and kiosk rental system Redbox. It isn’t incredibly large, but at $7 billion in market value and with a lot of experience in dealmaking Apollo has figured out how to use capital markets and structured finance to buy reasonably large firms. But rather than hold them, it specializes in turnarounds and then re-selling the streamlined companies to others. The payoff on these deals isn’t guaranteed, but does support a very juicy dividend when it delivers.
Current yield: 5.3 percent
Umpqua Holdings (UMPQ)
This regional bank is probably not known to many folks outside the Pacific Northwest, but with 350 branches and more than $1 billion in annual revenue, this is no lightweight. Throw in a dividend that is significantly larger than the typical Standard & Poor’s 500 index company, and UMPQ is worth a look. Regional banks are interesting investments if they are in a healthy part of the nation, and states like Oregon, Washington and California are thriving. It’s not just Silicon Valley startups, but also Washington-based Microsoft Corp. (MSFT) and Seattle’s Amazon.com (AMZN) fueling the growth. As smaller businesses and consumers here succeed, so will this regional bank.
Current yield: 3.2 percent
AllianceBernstein Holding (AB)
As an investment firm and wealth manager, AllianceBernstein is a company some folks may be familiar with as clients. However, the publicly traded firm is also worth a look as a potential investment itself because it shares a portion of its Wall Street success with stockholders via generous dividends. “Retail” investors who personally use the firm aren’t the only customers, and its worth with institutional investors has given AB a massive $500 billion portfolio of assets under management. It doesn’t take a lot in fees or interest to turn that capital into a serious income-generation engine, and that’s exactly what this financial stock offers.
Current yield: 8 percent
Old Republic International Corp. (ORI)
With more than three decades of regular increases in its dividend, unsung insurance company Old Republic International is one of those under-the-radar picks that is boring but consistent for its loyal shareholders. The business of property and casualty insurance is fairly simple: Collect premiums that are slightly higher than whatever claims you have to pay out, and be responsible spending the extra on your operations. After that, the leftover money is distributed back to shareholders at a yield that is significantly higher than the average stock. There’s admittedly not a lot of growth, but it’s a nice reliable business — something income investors really like to see.
Current yield: 3.8 percent
Invesco Ltd. (IVZ)
One area of finance where there is a lot of growth, however, is in the innovative corner of the financial market that involves exchange-traded funds. As many investors move away from individual stocks and toward ETFs, issuers like Invesco are doing a brisk business. While an expense ratio of 0.35 percentage points on the typical fund may not sound like much, keep in mind that this firm has almost $1 trillion — yes with a T — under management. So that 0.35 percent works out to $3.5 billion in annual revenue. Those reliable fees also fuel a reliable dividend.
Current yield: 3.1 percent
Southside BancShares (SBSI)
Southside Bancshares is a community bank with about 60 locations in Texas, mainly around Dallas. But don’t let its lack of brick-and-mortar presence compared with the big guys scare you off. This firm is a $1 billion corporation that has a robust consumer and commercial loan unit. Shares haven’t burned down the house, but the good news is a pro-business environment in Washington has greatly increased the likelihood of mergers and acquisitions. And with a metro footprint but a reasonably digestible size, SBSI is a great acquisition target in 2018. And if it doesn’t get purchased by a big bank anytime soon, you can still enjoy a nice dividend.
Current yield: 3.2 percent
Park National Corp. (PRK)
This central Ohio bank, like SBSI, is a community-oriented institution that mainly serves folks in a small area of the nation. But beyond the similar buyout potential, Park National also has a nice track record of performance lately now that the woes of the Great Recession and financial crisis are behind us. Shares have doubled since their 2011 lows and are up against a new 52-week high as this small bank enjoys continued success. And with a dividend that yields a full percentage point more than 10-year Treasury bonds, the income potential is also a great reason to give PRK a look.
Current yield: 3.5 percent
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7 Under-the-Radar Financials to Buy for Income originally appeared on usnews.com
