Investors are watching the financial sector.
As the foundation of the U.S. economy, through small business loans and mortgage origination and credit card services, the financial sector is perhaps the best indicator of the U.S. economy’s health. However, investors don’t have to rely on these big-picture trends alone if they want to invest in banks and other financial stocks. A number of picks in the sector simply manage a stable portfolio of loans or other assets, and then pass a share of their profits on to shareholders via big dividends. If you’re looking for lower-risk bank stocks that primarily offer income potential, here are nine picks to consider.
Royal Bank of Canada (ticker: RY)
Why start north of the border when looking for the best dividend stocks in the financial sector? Because Canada’s banks share many of the strengths of the U.S. financial sector but operate under a slightly more restrictive regulatory structure and historically generate slightly better dividend yields. That makes the $100 billion Royal Bank of Canada a slam-dunk. Investors get a higher degree of stability and the guarantee of generous income for many years. Just be aware that as a foreign stock, dividends aren’t consistent to the penny each quarter. But minor fluctuations in payouts are a small price to pay for this dividend machine.
Current yield: 3.7 percent
Navient Corp. (NAVI)
Formerly known as Sallie Mae, Navient is one of the largest student loan companies. The ride for shareholders has been bumpy as growing frustration over the broader crisis of student loan debt has made NAVI a target by regulators and consumer advocates. However, its core business is a stable center for reliable dividends. If you’re OK with a little volatility in share price in exchange for a juicy dividend, this student loan lender is worth a look. It remains unlikely that significant changes to student loan practices or high cost of college are imminent and NAVI is a good bet in the current environment.
Current yield: 4.7 percent
JPMorgan Chase & Co. (JPM)
JPMorgan has long been one of the most-respected banks in the U.S. The bank fared better than most during the financial crisis and was stable enough to make impressive acquisitions of troubled peers at rock-bottom prices. The result is the largest commercial bank in America, with some $2.1 trillion in assets. That stability gives this stock a lot of certainty when it comes to dividend payments. It’s worth noting JPM’s dividend surpasses its 2008 payout level back in 2014, and distributions have grown to an annual rate of $2.24 from just 20 cents quarterly during the depths of the financial crisis.
Current yield: 2.1 percent
Wells Fargo & Co. (WFC)
Another big bank of note is Wells Fargo. It’s the No. 2 U.S. commercial bank behind JPM, and has a similar story of weathering the depths of the Great Recession better than the rest of the sector. Specifically, WFC made a bold bet to dive back into mortgage lending faster than other stocks — and by 2012, roughly one out of three new mortgages were originated by the bank. That ambitious decision to bet big on the recovery of the housing market has been an undeniable success for this financial stock and its shareholders.
Current yield: 3 percent
SunTrust Banks (STI)
Atlanta-based SunTrust isn’t quite as large, however, at more than $30 billion in market value it is certainly no slouch — and with a share price that has more than doubled in the last five years, this regional bank seems to be doing something right. That’s because STI is limited from some of the big-picture risks of a bank of like JPMorgan, such as a big investment arm that can be hit or miss. Instead, SunTrust is the perfect Goldilocks stock — not too big but not too small, with more than 1,400 branches and $200 billion in assets.
Current yield: 2.3 percent
Bancolombia (CIB)
Looking again to opportunities outside the U.S., South American financial stock Bancolombia is a spicier play on banks. Shares have struggled recently as its loan performance hasn’t been great and profits have suffered. That’s in part because a brisk GDP growth rate around 3 percent has faded. However, the Organization for Economic Cooperation and Development says strong domestic demand is boosting consumption and investment in the region. And cyclical stocks like CIB are going to be first to benefit. While there is more risk in this emerging markets stock, the generous yield with the potential for share appreciation make it worth a look in 2018.
Current yield: 3.4 percent
Ares Capital Corp. (ARCC)
Ares Capital is a business development company, a kind of partnership run almost like a hedge fund. Investors give management capital to invest and then 90 percent of the net income is delivered back to shareholders in the form of dividends. ARCC is one of the best BDC’s out there because even if its share appreciation sometimes lags the broader market, its payments are consistent and reliable. For income investors willing to take on a bit of volatility in shares, there are few other places that will deliver this kind of yield right now in the financial sector.
Current yield: 9.2 percent
Huntington Bancshares (HBAN)
Regional bank Huntington is one of the smaller financial stocks out there, with a market capitalization of about $16 billion. However, it is a big regional player in the Midwest with stable operations that generate a generous yield better than some of the big guys. Furthermore, with a Republican Congress and business-friendly regulators in the White House, it’s not unreasonable for HBAN shareholders to hope for a big buyout offer from one of the megabanks. With operations that are substantial but a market value that is reasonably digestible, Huntington makes an attractive acquisition target, as well as an attractive long-term dividend play.
Current yield: 3 percent
TFS Financial Corp. (TFSL)
An even smaller regional player that may be worth a look is TFS, the brand behind regional bank Third Federal Savings & Loan. Based in Cleveland and serving mainly Ohio and Florida, the company is a direct play on the hopes of a cyclical trends boosting consumer and business lending in the Midwest. If pro-growth policies pay off, TFS will see a more direct benefit than a bigger and more diversified bank. There are risks in that strategy if things sour, of course, but if you want to play local lending trends and get paid a dividend along the way, TFSL is a good option.
Current yield: 4.5 percent
More from U.S. News
9 ETFs to Capture China’s Red-Hot Growth
11 Steps to Make a Million With Your 401k
9 Financial Stocks to Buy for the Dividends originally appeared on usnews.com
