In this article, we discuss 10 dividend stocks to buy in the financial services sector. You can skip our detailed analysis of the financial services sector’s performance and the recent market selloff, and go directly to read 5 Dividend Stocks to Buy in the Financial Services Sector.
Since the start of this year, investors have faced challenges in the face of sizzling inflation and other geopolitical tensions. The downturn of the market continues and is not coming to an end anytime soon, according to analysts. On September 13, a broad selloff brought the US stock market to its knees, as the largest companies in the broader index reported a loss of billions of dollars. The tech-heavy NASDAQ Index reported its worst trading day since March 2020, suffering a decline of 5.16%. Similarly, the S&P 500 dropped 4.32% as more than 490 stocks in the index reported declines.
The selloff was particularly painful for tech stocks. According to a report by CNBC, the six-largest US tech companies, including Apple, Microsoft, Alphabet, Amazon, Meta, and Nvidia collectively lost over $500 billion on September 13, marking one of their worst performances ever. In this chaotic market situation, the finance sector’s performance is relatively stable. The US financial industry encompasses banking, investment, and insurance sectors, becoming one of the most important sectors of the country. In the US, the financial services industry has significantly contributed to the world’s economy, as its capital markets account for 41% of global equity and represent 72% of the US economic activity, as reported by the Securities Industry and Financial Markets Association.
The finance sector has evolved over the years with the induction of digital channels, which has contributed to its growth and returns. According to a report by Hartford Funds, the financial services industry is expected to grow by 3% annually despite the current economic turmoil. The report also mentioned that the financial technology sector is expected to reach $190 billion by 2026, growing at a CAGR of 13.7%. in view of this, we will discuss dividend stocks to buy in the financial services sector.
Given the market volatility, stocks could continue to fall if economic conditions fail to meet expectations. Nevertheless, there could be opportunity for long term investors who buy quality blue chip stocks given the low valuations.
Our Methodology:
We took 10 stocks that paid dividends from the S&p 500 financial services sector that we think have the right mixture of defensive qualities, dividend yield, and growth potential. We then ranked them from #10 to #1 based on the number of hedge funds in our database that held shares in the stock at the end of Q2 2022.
10 Dividend Stocks to Buy in the Financial Services Sector
10. The Travelers Companies, Inc. (NYSE:TRV)
Number of Hedge Fund Holders: 31
Dividend Yield as of September 13: 2.25%
The Travelers Companies, Inc. (NYSE:TRV) is a New York-based insurance company that is also one of the largest providers of commercial property casualty insurance. In July, Raymond James upgraded the stock to Strong Buy as the company is expected to outperform on a relative basis. In addition to this, the firm expects the company’s personal insurance segment to show growth in the upcoming quarters.
In Q2 2022, The Travelers Companies, Inc. (NYSE:TRV) reported revenue of $9.1 billion, which showed a 5% growth from the same period last year. The company recorded net written premiums of $9.02 billion, up 11% from the prior-year quarter. Its operating cash flow for the quarter came in at $1.3 billion and its total shareholder equity stood at $22.8 billion.
The Travelers Companies, Inc. (NYSE:TRV) has been raising its dividends consistently for the past 16 years and has paid dividends for the past consecutive 33 years. In the last decade, it has raised its dividends at a CAGR of 8.7%. Currently, it pays a quarterly dividend of $0.93 per share, with a dividend yield of 2.25%, as recorded on September 13.
At the end of Q2 2022, 31 hedge funds tracked by Insider Monkey owned stakes in The Travelers Companies, Inc. (NYSE:TRV), down from 37 in the previous quarter. These stakes hold a collective value of $433.8 million. Among these hedge funds, First Eagle Investment Management was the company’s leading stakeholder in Q2.
Alongside JPMorgan Chase & Co. (NYSE:JPM), Mastercard Incorporated (NYSE:MA), and Visa Inc. (NYSE:V), The Travelers Companies, Inc. (NYSE:TRV) is a dividend stock that’s held by many hedge funds in our database at the end of Q2 2022.
9. The Allstate Corporation (NYSE:ALL)
Number of Hedge Fund Holders: 37
Dividend Yield as of September 13: 2.68%
The Allstate Corporation (NYSE:ALL) is an American insurance company that also provides several business support services to other technology and finance companies. The company surpassed Street estimates in Q2 2022. Its revenue came in at $12.22 billion, which beat consensus by $850 million. Its cash position for the quarter also remained strong, as it generated $1.6 billion in operating cash flow and $1.5 billion in free cash flow. In addition to this, the company returned $919 million to shareholders through dividends and share repurchases.
The Allstate Corporation (NYSE:ALL) maintains a 14-year streak of dividend streak, coming through as a great dividend stock to buy in the financial services sector. The company currently pays a quarterly dividend of $0.85 per share and has a yield of 2.68%, as recorded on September 13.
In September, Credit Suisse maintained its Outperform rating on The Allstate Corporation (NYSE:ALL) with a $188 price target, highlighting its data on auto rate increases.
As of the close of Q2 2022, 37 hedge funds tracked by Insider Monkey reported owning stakes in The Allstate Corporation (NYSE:ALL), compared with 44 in the previous quarter. These stakes hold a consolidated value of over $627.3 million.
8. The Bank of New York Mellon Corporation (NYSE:BK)
Number of Hedge Fund Holders: 38
Dividend Yield as of September 13: 3.34%
The Bank of New York Mellon Corporation (NYSE:BK) is a New York-based investment banking services holding company. On July 15, the company declared an 8.8% hike in its quarterly dividend at $0.37 per share, which was the company’s 11th consecutive year of dividend growth. In addition to this, the company has been making uninterrupted dividend payments for the past 21 years. As of September 13, the company’s shares yield at 3.34%.
In Q2 2022, The Bank of New York Mellon Corporation (NYSE:BK) reported $43 trillion in assets under custody and $1.9 trillion in assets under management. The company’s revenue of $4.3 billion showed an 8.6% billion year-over-year growth. During the quarter, it generated roughly $4.4 billion in free cash flow and paid $279 million in dividends, which shows that its dividends are secure within its FCF.
In August, Deutsche Bank lifted its price target on The Bank of New York Mellon Corporation (NYSE:BK) to $46 and maintained its Hold rating on the shares, as asset managers are seeing growth due to the rebound after the pandemic. The firm also highlighted the sector’s strong fundamentals.
At the end of June 2022, 38 hedge funds in Insider Monkey’s database owned stakes in The Bank of New York Mellon Corporation (NYSE:BK), down from 54 in the previous quarter. These stakes are collectively valued at over $3.6 billion. With over $3 billion worth of stakes, Berkshire Hathaway owned the largest position in the company in Q2.
Ariel Investments mentioned The Bank of New York Mellon Corporation (NYSE:BK) in its Q4 2021 investor letter. Here is what the firm has to say:
“Rising interest rates, after a surprisingly long period of low absolute rates and negative “real” rates, will create a headwind. While there has been much debate about the cause of these low rates, we believe the most important factor has been the $120 billion in monthly federal reserve open market bond purchases and the accumulation of an $8 trillion balance sheet. The former will end, and the latter will shrink. It is not just the Fed that has aggressively purchased bonds, bidding up prices and lowering yields. Bond traders and hedge fund managers have added to positions, confident that being on the same side as the Fed was the wise place to be. Now as the Fed is about to become a seller of bonds rather than a buyer, Wall Street’s “smart money” is likely to follow suit. Against this backdrop, fixed income securities and bond substitutes such as high dividend paying utilities and absolute return hedge funds are substantially overpriced and are not likely to produce attractive returns going forward.
This expectation of a reversion to the mean for interest rates helped 2021 performance, though not as much as we had hoped. The yield on the U.S. 10-year Treasury did indeed increase from +0.92% at the beginning of the year to +1.52% at year-end. An underreported story was the poor performance of bonds last year. The Barclays Aggregate Index declined -1.67% for the year ending December compared to a return of +28.71% for equities as measured by the S&P 500. Interest rates have continued to climb in 2022 with the 10-year Treasury at +1.79% as we go to print. This move higher in rates has contributed to our good, early start to 2022. Smaller positions in The Bank of New York Mellon Corporation (BK) also benefited from higher rates, principally with their ability to invest customer cash.”
7. BlackRock, Inc. (NYSE:BLK)
Number of Hedge Fund Holders: 50
Dividend Yield as of September 13: 2.80%
Another prominent dividend stock to buy in the financial services sector is BlackRock, Inc. (NYSE:BLK), which is an American multinational investment company. It also offers risk management services to its consumers. According to Insider Monkey’s Q2 data, 50 hedge funds invested in the company, up from 49 in the previous quarter. These investments have a combined value of over $1.5 billion.
BlackRock, Inc. (NYSE:BLK) reported $4.53 billion in revenues in Q2 while its assets under management came in at $8.49 trillion. The company’s operating cash flow for the quarter stood at $1.64 billion and it generated $1.52 billion in free cash flow.
BlackRock, Inc. (NYSE:BLK) ceased its dividends during the financial crisis of 2008 but has raised its dividends every year since then. It currently offers a quarterly dividend of $4.88 per share, with a dividend yield of 2.80%, as recorded on September 13.
In August, Deutsche Bank lifted its price target on BlackRock, Inc. (NYSE:BLK) to $860 with a Buy rating on the shares, appreciating the company’s fundamentals and balance sheet.
6. CME Group Inc. (NASDAQ:CME)
Number of Hedge Fund Holders: 56
Dividend Yield as of September 13: 2.00%
CME Group Inc. (NASDAQ:CME) is an Illinois-based global markets company and is one of the world’s largest financial derivative exchanges. The company has been making consistent dividend payments for the past 18 years, compared with a sector’s median of 11 years. It maintains a 12-year streak of dividend growth and has raised its payouts at a CAGR of 8.61% in the last five years. Currently, it offers a quarterly dividend of $1.00 per share and has a yield of 2.00%, as of September 13.
In Q2 2022, CME Group Inc. (NASDAQ:CME) generated revenue of $1.2 billion, which showed a 2% growth from the same period last year. Its free cash flow for the quarter came in at nearly $600 million and paid $363 million in dividends, signally strong FCF generation. Since 2012, the company has distributed over $18.5 billion to shareholders in the form of dividends.
In September, Credit Suisse maintained its Neutral rating on CME Group Inc. (NASDAQ:CME) with a $210 price target, as the company reported growth in its August volumes.
Of the 895 elite funds tracked by Insider Monkey, 56 hedge funds owned positions in CME Group Inc. (NASDAQ:CME) in Q2, cmpared with 58 in the previous quarter. The stakes owned by these hedge funds hold a collective value of over $2.7 billion.
ClearBridge Investments mentioned CME Group Inc. (NASDAQ:CME) in its Q4 2021 investor letter. Here is what the firm has to say:
“CME Group, for example, maintains a dominant franchise in electronic commodities and options trading with high incremental margins. Its interest rate trading business had been depressed coming out of the recession, but with a tightening policy environment, it now provides upside optionality that augments robust free cash flow growth and capital return. Willscot Mobile Mini is another compounder that executed well through the pandemic but was not initially recognized for the synergies of its Mobile Mini acquisition. The deal has reduced costs and created greater operating leverage as the company rides the tailwinds of improving industrial production and construction.”
Like CME Group Inc. (NASDAQ:CME), JPMorgan Chase & Co. (NYSE:JPM), Mastercard Incorporated (NYSE:MA), and Visa Inc. (NYSE:V) are dividend stocks in the financial sector that’s held by many hedge funds in our database at the end of Q2 2022.
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Disclosure. None. 10 Dividend Stocks to Buy in the Financial Services Sector is originally published on Insider Monkey.
