The personal consumption expenditures (PCE) inflation data on Friday was not what the market wanted to hear. The big selling that followed the higher than expected number could be just the beginning of what may be a steep downturn in the market following a long bear market rally. The PCE price index is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior. Analysts were looking for an increase of 4.9% year over year, and many were stunned when the 5.4% print hit the tape.
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That does not bode well for some stocks, like utilities and some real estate investment trusts. For financials, though, it means one thing: increased net-interest-income earnings. Net interest income is a financial performance measure that reflects the difference between the revenue generated from a bank’s interest-bearing assets and the expenses associated with paying on its interest-bearing liabilities. And that can earn interest for banks ranging from mortgages to auto, personal and commercial real estate loans.
Banks are not the only companies that benefit. So do insurance companies, some retailers that provide their own credit cards, corporations with very low balance sheet debt, and others that can do very well when rates go higher. The following seven Buy-rated dividend stocks look like very solid ideas. However, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Ally Financial
The bank with no buildings is poised to have a strong 2023. Ally Financial Inc. (NYSE: ALLY) is a digital financial services company that provides various digital financial products and services to consumer, commercial and corporate customers primarily in the United States and Canada. It was formerly known as GMAC and changed its name in May 2010.
Its Automotive Finance Operations segment offers automotive financing services, including providing retail installment sales contracts, loans and operating leases, term loans to dealers, financing dealer floor plans and other lines of credit to dealers, warehouse lines to automotive retailers and fleet financing. It also provides financing services to companies and municipalities for the purchase or lease of vehicles and vehicle-remarketing services.
The Insurance Operations segment offers consumer finance protection and insurance products through the automotive dealer channel and commercial insurance products directly to dealers. This segment provides vehicle service and maintenance contracts and guaranteed asset protection products, and it underwrites commercial insurance coverages, which primarily insure dealers’ vehicle inventory.
The Mortgage Finance Operations segment manages consumer mortgage loan portfolio that includes bulk purchases of jumbo and low-to-moderate income mortgage loans originated by third parties, as well as direct-to-consumer mortgage offerings.
The Corporate Finance Operations segment provides senior secured leveraged cash flow and asset-based loans to middle market companies, leveraged loans and commercial real estate products to serve companies in the health care industry. The company also offers commercial banking products and services. In addition, it provides securities brokerage and investment advisory services.
Investors receive a 4.00% dividend. BMO Capital Markets has a $51 target price on Ally Financial stock. The consensus target is just $35.24, and the stock closed on Friday at $30.22.
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Bank of America
This is one of the biggest banks in the country, and Warren Buffett owns a stunning 1.1 billion of its shares. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers and online and mobile banking platforms.
Bank of America has expanded into several new U.S. markets, with scale across the country positioning it ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to increase investment substantially over the next few years without notably jeopardizing returns, driving further market share gains.
Shareholders receive a 2.57% dividend. Oppenheimer’s $53 target price is well above the $40.79 consensus target for Bank of America stock. The shares closed on Friday at $34.21.
24/7 Wall St.JPMorgan Chase
This stock trades at a still reasonable 12 times estimated 2023 earnings. JPMorgan Chase & Co. (NYSE: JPM) is one of the leading global financial services firms and one of the largest banking institutions in the United States, with about $2.6 trillion in assets. The company as it is today was formed through the merger of retail bank Chase Manhattan and investment bank J.P. Morgan.
The firm has many operating divisions, including investment and corporate banking, asset management, retail financial services, commercial banking, credit cards and financial transaction services.
Top analysts are very positive on JPMorgan, largely because the industry titan faces a continued broad recovery in nearly every aspect of its business:
- Leading M&A advisory and capital markets product set and market share
- Massive footprint of corporate and commercial banking customers
- Sizable wholesale payments businesses.
The company has proven that it has the wherewithal to continually invest in people, products and platforms to further its market share base, extending its competitive advantage versus most peers.
JPMorgan Chase stock comes with a 2.84% dividend. The Goldman Sachs price objective is $182. The consensus target is $157.95, and shares closed at $140.93 on Friday.
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Kohl’s
This top retail stock still offers an excellent entry point and a big dividend. Kohl’s Corp. (NYSE: KSS) operates department stores in the United States. It offers branded apparel, footwear, accessories, beauty and home products through its stores and website.
With the economy struggling, consumers increasingly are turning to discount retailers for clothes, food and many additional items, and Kohls has a legendary following of value-seeking customers that shop at the retailer through good and bad times. When the use of privately branded credit cards rises, so does the bottom line at the company.
The dividend yield here is 6.84%. Guggenheim has set its price target at $38, well above the $29 consensus target. Kohl’s stock closed on Friday at $29.22.
MetLife
This top insurance stock is a safe bet in a rising interest rate environment. MetLife Inc. (NYSE: MET), a financial services company, provides insurance, annuities, employee benefits and asset management services worldwide.
The company offers life, dental, group short-and long-term disability, individual disability, pet, accidental death and dismemberment, vision and accident and health coverage. It also offers prepaid legal plans; administrative services-only arrangements to employers; and general and separate account, and synthetic guaranteed interest contracts, as well as private floating rate funding agreements.
MetLife provides pension risk transfers, institutional income annuities, structured settlements and capital markets investment products. Its other products and services include life insurance products and funding agreements for funding postretirement benefits, as well as company, bank or trust-owned life insurance used to finance nonqualified benefit programs for executives.
In addition, the company provides fixed, indexed-linked and variable annuities; pension products; regular savings products; whole and term life, endowments, universal and variable life and group life products; longevity reinsurance solutions; and credit insurance products.
Holders of MetLife stock receive a 2.78% dividend. The $90 Morgan Stanley target price compares with an $83.50 consensus target and the most recent close at $71.84.
Prosperity Bancshares
This smaller bank has literally zero debt and offers impressive growth potential. Prosperity Bancshares Inc. (NYSE: PB) operates as a bank holding company for the Prosperity Bank, which provides financial products and services to businesses and consumers. It accepts various deposit products, such as demand, savings, money market, and time accounts, as well as certificates of deposit.
The company also offers residential mortgage, multifamily residential, commercial and industrial, agricultural and non-real estate agricultural loans, as well as construction, land development and other land loans. Its consumer loans include automobile, recreational vehicle, boat, home improvement, personal and deposit account collateralized loans. It also offers consumer durables and home equity loans, as well as loans for working capital, business expansion and purchase of equipment and machinery.
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In addition, it provides internet banking, mobile banking, trust and wealth management, retail brokerage, mortgage services and treasury management, as well as debit and credit cards.
Shareholders receive a 2.97% dividend. Prosperity Bancshares stock has an $85 target price at Raymond James. The $79.14 consensus target is closer to Friday’s $74.12 closing share price.
24/7 Wall St.Valero Energy
This Wall Street favorite is a solid energy play for conservative investors looking for safer ideas. Valero Energy Corp. (NYSE: VLO) is one of the largest independent petroleum refining and marketing companies in the United States. It is based in San Antonio, Texas; owns 13 refineries in the United States, Canada and Europe; and has a total throughput capacity of around 2.5 million barrels per day.
The company also is a joint venture partner in Diamond Green Diesel, which operates a renewable diesel plant in Norco, Louisiana. Diamond Green Diesel is North America’s largest biomass-based diesel plant.
Valero sells its products in the wholesale rack or bulk markets in the United States, Canada, the United Kingdom, Ireland and Latin America. Approximately 7,400 outlets carry Valero’s brand names.
In addition, the company has very low debt, and interest expense on a yearly basis is very manageable.
Investors receive a 3.08% dividend. The Strong Buy rating at Raymond James is accompanied by a price target of $174. The consensus target is $158.87. Valero Energy stock closed on Friday at $132.75.
These seven top stocks come with dependable dividends and should continue to fare well despite what is sure to be at least three more 25-basis-point rate increases, in March, May and July. Despite being able to avoid interest rate risk, the problem now is market risk, as we could be headed much lower. With that in mind, it makes sense to scale buy these ideas over the next month or so.
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