Rising rates may be a tail wind for these bank stocks in 2022.
In 2022, one of the biggest trends on Wall Street is the disruption caused by higher interest rates and the Federal Reserve’s moves toward tighter monetary policy. This is causing uncertainty for a few reasons, most notably the fact that increased borrowing costs may be a drag on certain companies that have previously enjoyed easy access to financing. But while risks abound, one segment of the stock market that undeniably benefits from higher interest rates is financial firms involved in lending, as they can charge higher interest on debt and thereby generate bigger streams of regular revenue. Often these financial stocks use that cash to support generous dividend payments to shareholders, too. The following seven bank stocks are examples of the opportunity that could be created by higher rates, and each has a dividend yield of at least 3%.
Cathay General Bancorp (ticker: CATY)
A roughly $3 billion regional bank, Cathay offers standard commercial banking products to individuals and small to midsize businesses through about 50 branches, largely in California. The business also has operations in Hong Kong and in China, however, allowing it to serve individuals with either personal or professional connections to Asia. This makes for a unique opportunity, with a slow-and-steady domestic business building on savings accounts and lines of credit along with a big shot of emerging market flavor to provide growth potential. The real appeal for long-term investors, however, is the above-average dividend, which is currently only about one-third of total earnings and has the potential for future increases down the road.
Dividend yield: 3.2%
CVB Financial Corp. (CVBF)
CVB Financial is the bank holding company behind Citizens Business Bank, an institution that offers banking and financial services to small to midsize businesses as well as to individuals. The company also provides financial services through its CitizensTrust Division, such as fiduciary services, mutual funds, annuities, 401(k) plans and individual investment accounts. Like many financial stocks, rising interest rates have been a pretty good thing for CVBF, as it boasts some $16 billion in total assets under management. Higher rates mean a bit more margin on loans as well as better returns on interest-bearing investments, and also mean CVB can put its cash stockpile to work in more profitable ways in the current environment.
Dividend yield: 3.2%
First Hawaiian Inc. (FHB)
As you probably guessed, First Hawaiian is a bank holding company that serves the Hawaiian Islands, as well as nearby Guam and Saipan. Its business is the standard fare for local banks, including residential mortgages, auto loans, commercial leases and private banking services. Founded in 1858, First Hawaiian has deep roots in the region and a specialized knowledge of local financial needs. And while FHB took a bigger dive than some other banks in 2020, as COVID-19 restrictions hit the tourism and trade businesses of Hawaii harder than they did mainland U.S. economies, FHB continued to pay uninterrupted dividends. In 2022, the stock is back on track and slightly in the green year to date, despite a rough environment elsewhere on Wall Street.
Dividend yield: 3.8%
Hercules Capital Inc. (HTGC)
Hercules Capital specializes in providing “venture” debt and growth capital to fast-growing businesses in pursuit of a significant return on its investment. The firm also provides bridge financing to initial public offering, or IPO, candidates or companies looking to finance major mergers or acquisitions. Based in Silicon Valley, it perhaps unsurprisingly prefers to invest in technology, energy technology, sustainable energy and similarly dynamic fields. You may think this tech-oriented financial stock is more concerned about growth than income — but you’d be very wrong. Based on its most recent distributions, HTGC yields a stunning 10.2% and is the most generous stock on this list.
Dividend yield: 10.2%
Jackson Financial Inc. (JXN)
Jackson is a specialized financial stock, operating mainly in the annuity space. Through its “retail” annuities segment, JXN offers various retirement income and savings products directly to investors, including variable, fixed index, fixed and immediate-payout annuities, as well as registered index-linked annuities and other lifetime income products. If you’re reading this list of dividend-oriented financial stocks, you clearly understand the importance of lifetime income. And many investors who don’t want the hassle of picking stocks or managing a bond portfolio opt for Jackson’s structured products instead. This in-demand business isn’t just doing well in 2022, but it is also throwing off reliable income thanks to strong financial management. The company just bumped up its dividend 10%, to 55 cents quarterly, and authorized a $300 million stock buyback on top of that as proof of its strong operations.
Dividend yield: 5.1%
Owl Rock Capital Corp. (ORCC)
Owl Rock Capital is not your typical financial stock. It’s a business development company, meaning it operates almost like a hedge fund by making investments in senior loans or targeted equity investments in the opportunities it identifies. Owl Rock tends to put its cash behind companies it thinks will succeed due to product expansion or refinancing that restructures debt, and it prefers middle-market companies with less than $2 billion in annual revenue. A rising-interest-rate environment means ORCC can get a better rate of return on its credit services, and the debt service on its loans helps power an impressive dividend that’s nearly six times that of the S&P 500.
Dividend yield: 8.3%
Western Union Co. (WU)
If you think Western Union is a decidedly old-school stock that doesn’t have a lot of appeal in 2022, think again. The reality of the modern economy is that many folks around the world are “underbanked” thanks to low credit scores or simply a lack of interest in adhering to the rules of traditional finance. That’s where WU comes in, facilitating consumer-to-consumer transfers across international borders as well as bill payment and mobile-transfer services. Though founded way back in 1851, this company has a unique fintech flavor — and unlike the latest risky startup, WU is a well-run operation with significant profits and generous dividends to entice investors.
Dividend yield: 4.9%
7 bank stocks to buy for the dividends:
— Cathay General Bancorp (CATY)
— CVB Financial Corp. (CVBF)
— First Hawaiian Inc. (FHB)
— Hercules Capital Inc. (HTGC)
— Jackson Financial Inc. (JXN)
— Owl Rock Capital Corp. (ORCC)
— Western Union Co. (WU)
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Update 04/12/22: This story was published at an earlier date and has been updated with new information.