While some analysts feel that the Federal Reserve should continue to hold rates at historic lows, others feel that there is enough strength in the economy and the unemployment picture has improved to the point, along with inflation, at which the Fed can continue raising rates, albeit at a slow pace. One sector with companies that could do well with an increase in rates is the financial sector.
One of the firms we cover here at 24/7 Wall St. is UBS, and while they are neutral on the overall sector, they have 12 companies that fall in the firm’s most preferred category. We picked four that appear to be solid choices with the highest dividends.
This top company offers investors solid upside potential and a very nice dividend. Ameriprise Financial Inc. (NYSE: AMP) provides a range of financial products and services in the United States and internationally. The Advice & Wealth Management segment offers financial planning and advice, as well as brokerage services primarily to retail clients through its advisors.
Its Asset Management segment provides investment advice and investment products to retail, high net worth, and institutional clients through unaffiliated third-party financial institutions and institutional sales force. In recent years Ameriprise has recruited heavily from the top Wall Street firms ranks.
Ameriprise returned $568 million to investors in the first quarter via buybacks and dividends, as well as raised its quarterly payout by 12%. Trading at a forward price-to-earnings number of just over 9 and PEG of 0.84, the stock makes sense for investors looking to add a top financial.
Ameriprise investors are paid a 3% dividend. The Thomson/First Call consensus price target for the stock is $115.67. The shares closed Thursday at $100.67 apiece.
Discover Financial Services
This top financial stock has very wide brand recognition. Discover Financial Services Inc. (NYSE: DFS) is a direct banking and payment services company with one of the most recognized brands in U.S. financial services. Since its inception in 1986, the company has become one of the largest card issuers in the United States. The company issues the Discover card, America’s cash rewards pioneer, and offers private student loans, personal loans, home equity loans, checking and savings accounts and certificates of deposit through its direct banking business.
The company also operates the Discover Network, with millions of merchant and cash access locations; PULSE, one of the nation’s leading ATM/debit networks; and Diners Club International, a global payments network with acceptance in more than 185 countries and territories.
Discover shareholders are paid a 1.97% dividend. The consensus price objective is set at $63.17. The stock closed trading on Thursday at $56.80 a share.
This stock trades at a very low 11.4 times estimated 2016 forward earnings and would do well in a rising rate scenario. JPMorgan Chase & Co. (NYSE: JPM) is expected to benefit from commercial loan growth and an upturn in capital spending. Wall Street analysts agree that the stock seems attractively valued on estimated price-to-earnings and a very solid price-to-book value. Some on Wall Street have cautioned that last year’s divestiture of the physical commodities business could provide an earnings headwind throughout this year.
Improvement in loan growth, slow but improving equity capital markets, and a steady increase in deposits will be a solid plus. Trading at a discount to many of the large cap banks on 2016 earnings estimates helps upside potential as well. With $2.6 trillion in assets on a worldwide basis, and one of Wall Street’s savviest leaders in Jamie Dimon, the stock is a solid buy for investors.
Dimon put his money where his mouth was earlier this year and reportedly bought a stunning 500,000 shares of the stock for a massive $26 million. That brought his total holdings in the bank to 6.7 million shares, worth over $360 million.
JPMorgan investors are paid a solid 2.93% dividend. The consensus price target is $70.75. The shares closed most recently at $64.75.
This company is a financial services leader that has strong positions in both equity exchange traded funds (ETFs) and actively managed equity and debt mutual funds. Invesco Ltd. (NYSE: IVZ) looks to be very well-positioned to capitalize on inflows into both segments, as well as higher asset prices, as many on Wall Street see a continuation of the six-year bull market.
Invesco PowerShares is the boutique investment management firm that manages a family of ETFs. The company has been part of Invesco, which markets the PowerShares product, since 2006. The incredible growth and popularity of the product is why many on Wall Street remain so bullish on the stock. The Jefferies analysts see the company as one that is best positioned to compete for share given mix, product offerings and attractive relative performance.
Invesco investors are paid a very rich 3.85% dividend. The $36.54 consensus target is well above the $29.07 share price on Thursday’s close.
All four of these stocks look good for investors seeking exposure to the financials sector and also looking for dividends and dividend growth. With the market trading near all-time highs, investors may want to consider partial positions now, and add shares when the market pulls back some.