How to Find Dividend Stars: Financial Sector

This is part of a YCharts series analyzing dividend-payers across all 10 sectors of the S&P 500. The initial article explained how to find dividend stars in 10 sectors. Following articles looked at dividend stars in the consumer defensive sector and among utility stocks.

There’s no getting around the fact that the financial sector is the dividend bad-boy of the S&P 500; during the financial crisis banks, including Wells Fargo (WFC), JP Morgan Chase (JPM) and Bank of America (BAC), slashed their income payouts as epic losses wreaked havoc on balance sheets.

WFC Dividend Chart

WFC Dividend data by YCharts

In fact, just two banks, Wells Fargo and M&T Bank (MTB) were left standing after our YChart Stock Screener sifted through the sector for companies with a 2% current yield, 5-year annualized dividend growth of at least 1% (the sector average) and a forward PE multiple below the 12.5 forecast for the sector.

The good news is that you can get solid dividends without having to bet on the capital reserves of banks. Insurers Aflac (AFL) and UNUM (UNM) made the cut in our screen and both are rated Attractive in YCharts’ proprietary valuation analysis. Western Union (WU) and its compelling 3.5% current yield also made the cut and is rated Attractive. As shown in the chart below, shareholders of all three financial service companies didn’t get smacked with a dividend cut during the financial crisis; we’ve tossed in Wells Fargo as the banking counterpoint.

AFL Dividend Chart

AFL Dividend data by YCharts

(M&T Bank also passed our screen and did not cut its dividend during the financial crisis. Thing is, it hasn’t raised its dividend since a 7.8% hike in 2008. That’s not exactly consistent dividend growth.)

Aflac’s low PE ratio is in large part a result of lingering losses on an investment portfolio that entered the financial crisis way too exposed to European debt markets. An outsider was brought in to revamp the investment portfolio in 2011. Net after-tax realized losses on investments declined from $1 billion in 2011 to $226 million last year. Progress. Aflac was featured in an earlier YCharts series on dividend dividend growth, ranking in the top ten among S&P Dividend Aristocrats. And in terms of ongoing operations, it’s not as if Aflac is a basket case:

AFL EPS Diluted TTM Chart

AFL EPS Diluted TTM data by YCharts

Unum stock has been on an absolute tear of late, nearly tripling the year-to-date price rise for the market as seen in a stock chart.

UNM Chart

UNM data by YCharts

Still, with a trailing and forward PE ratio below 9, it is not looking pricey.

Western Union was recently featured in a YCharts article that highlighted wide moat stocks Warren Buffett could love. A 3% current dividend yield from a payout that has more than tripled over the past five years is indeed compelling from the global leader in money transfers (that’s the moat). But in the near-term Western Union expects its revenue to take a hit this year, in part due to the negative impact of regulatory changes in its Mexican business. While the stock has only recently shown signs of stabilizing after a big sell-off, management has shown it’s committed to returning capital to shareholders. Aggressive buybacks pushes Western Union’s net payout yield above 10%.

WU Net Payout Yield TTM Chart

WU Net Payout Yield TTM data by YCharts

And a 25% dividend payout ratio suggests there is also room for Western UInion to deliver more dividend growth as well.

Carla Fried, a senior contributing editor at ycharts.com, has covered investing for more than 25 years. Her work appears in The New York Times, Bloomberg.com and Money Magazine. She can be reached at editor@ycharts.com.

Read more articles about: Investing Ideas  

blog comments powered by Disqus
Advertisement

Search Articles

Subscribe to YCharts Analysis

Advertisement

{{root.upsell.info.feature_headline}}.
Upgrade to {{root.upsell.info.tier_name}}. Start Your YCharts Membership. Start your {{root.upsell.info.tier_name}} Membership

{{root.upsell.info.feature_description}}

{{root.upsell.info.is_upgrade ? "Upgrade Now" : "Get Started Now"}}

Already a YCharts Member? Already a {{root.upsell.info.tier_name}} Member? Sign in here.