While the U.S. economy continues to grow and add jobs, talk of a recession is increasingly in the air as a result of several worrying signs. Growing economic jitters and uncertainty over the ongoing trade war with China is causing investors to become nervous and apprehensive about their investment in the stock markets.
Policymakers are aggressively taking steps to strengthen the economy, such as the Federal Reserve’s latest decision to lower short-term borrowing costs.
In precarious times like these, investors often are unsure when or if they should buy stocks. However, most experts would say the best counsel is to hold out on all the investments already made and avoid making any rash decisions.
As per James Brumley, “It has been said (and verified) that 95% of true “day traders” — the most aggressive and active of all market participants — end up losing money by being too active for their own good. Conversely, the fact that Warren Buffett’s favorite holding period is “forever” and how he’s got a track record most investors would envy is just as telling.” 1
Learning from the 2008 Financial Crisis
Some investments may seem riskier than others. Investing in banks and financial institutions are often categorized as unsafe, especially after the 2008 financial crisis that resulted in the great recession that rocked Wall Street. At that time, it was fairly common to believe that big banks were among the most stable companies in the market. After all, these institutions were at the center of all commerce with massive assets on their balance sheet. Although financial stocks were once a safe investment for many low-risk investors, after the financial crisis, they have been slow to put their trust back into financial stocks.
According to Alexander Kurov, “But the short answer, for most investors, is the exact opposite: Stick to your long-term plan and ignore day-to-day market fluctuations, however frightening they may be. Don’t take my word for it. The tried and true approach of passive investing is backed up by a lot of evidence.” 2
It’s been over a decade since the financial crisis of 2008. There are now more robust regulations in place and the general restructuring of capital markets indicates that big banks and financial institutions could once again be treated as smart investment opportunities for long-term income.
Top financial stocks in 2019
Here are some financial stocks of different types that are likely poised to deliver consistent dividends for shareholders.
Citigroup (ticker: C)
In many ways, Citigroup was the prime mover for the new type of integrated full-service banks. After the merger with Travelers Group in the 1980s, the strategic changes built cross-sell services across the organization and empowered all arms of the megabank.
Although the 2008 financial crisis had a serious impact on Citi’s overall operations and Travelers (TRV) was eventually spun off in 2002, it continues to hold its position with approximately $150 billion market cap as one of the most powerful and entrenched entities in the sector.
They are also one of the more generous banks when it comes to dividends.
Current yield: 3.3%
Ameriprise Financial (AMP)
Wealth management firm Ameriprise Financial with $17 billion in market capitalization, is not as comfortable as Citi; nonetheless, it is still a sizeable financial stock with deep enough pockets to be competitive.
AMP is based out of Minneapolis and involved in business with Midwestern clients. AMP’s 2008 purchase of H&R Block’s financial advisor business and 2009 purchase of Columbia Management created new clienteles to fuel its continued growth and success. AMP shares are up currently five times from their 2009 lows, and dividends have amplified at an equally impressive rate from 17 cents in 2009 per quarter to 97 cents as of this summer.
Current yield: 3.1%
Principal Financial Group (PFG)
Another big financial stock that could be a great investment opportunity for low-risk investors is the Principal Financial Group (PFG). PFG continues to get bigger even as other entities sell off underperforming assets in this competitive setting.
Recently, PFG acquired 7.5 million U.S. retirement clients from Wells Fargo & Co. (WFC) which resulted in doubling its business that caters to people with employer-sponsored 401(k) programs. This type of client is exactly the kind of stable business that is exciting for dividend investors because it displays a modest but steady stream of cash inflow.
The same could be said about PFG stock, which yields a dividend that is approximately twice that of the typical S&P 500 component at present.
Current yield: 4.1%
Keycorp is a well-established financial stock that is worth exploring for the dividends. It is a regional bank headquartered in Cleveland with operations in 15 states and nearly 1,200 retail branches. Although it is not as large as the biggest banks, it records about $6.5 billion in annual revenue and offers the stability investors are looking for in a bank.
If it were to get any bigger, KEY would have to aggressively expand beyond mortgages and small business loans into risky investment services like its larger peers. If it were any smaller it would not have deep enough pockets to weather a downturn. Since KEY has found a perfect balance, it could be perfect for long-term dividend investors.
Current yield: 4.5%
Although MetLife is popularly known for life insurance, it is much more than an ordinary insurance company. Some of the services it offers are pension risk transfer, investment services and administrative services for employer-sponsored benefit programs.
Essentially, this is what translates to investors as an attractive income investment. It has a diversified revenue stream with a consistent reliance on steady and robust business lines. Stockholders can be assured that MET shares will likely keep giving generously for several years to come.
Current yield: 3.9%
With several signs pointing to a possible recession, in our opinion, low-risk investors can continue to rely on financial stocks largely because of the robust regulations that have been built around it post the great recession in 2008.
Not interested in financial stocks? Check out our recent post on the US-China trade war here.