Banking & Finance

JPMorgan Says Time to Rotate to Dividend-Paying Financials

While many investors are wincing at the thought of interest rates increases, the fact of the matter is we have been at almost a zero federal funds rate for over seven years. The quantitative easing programs exacerbated the low interest rates and made it even harder for savers that rely on guaranteed dividends from certificates of deposit (CDs) and bank savings. With the solid nonfarm payroll report last Friday, and a huge increase in the jobs added, it’s looking like the Federal Reserve finally will start raising rates, and one sector not complaining, for the most part, is the financials.

A new JPMorgan research report says the time is right to rotate out of consumer discretionary stocks and into the top financials, specifically banks and brokerage firms with a banking arm, as well as insurance companies and top finance companies. We screened the JPMorgan research universe for financials rated Overweight that also pay solid dividends, and were found four that look very attractive now.

PNC Financial Services

This top regional bank has bounced back from the sell-off lows, but it is offering a solid entry point. PNC Financial Services Group Inc. (NYSE: PNC) is one of the largest U.S. diversified financial services organizations providing retail and business banking; residential mortgage banking; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. With consistent earnings growth and a very positive and growing loan portfolio, it is a premiere super-regional bank stock to own.

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The JPMorgan team points to numerous positives, including the bank implementing huge cost savings plans, which help offset a lackluster third-quarter earnings report. The bank recently highlighted up to $100 million of new savings. Wall Street has always applauded the bank’s outstanding credit/risk management and the limited exposure to the capital markets related areas.

Shareholders receive a very solid 2.25% dividend. The JPMorgan price target for the stock is $99.50, while the Thomson/First Call consensus target is $99.02. Shares closed Thursday at $93.26.