Income investors can rely on bank stocks in 2021.
Bank stocks have performed pretty well this year, thanks in part to a recovering economy and the prospect of higher interest rates that could boost their overall returns. Megabank JPMorgan Chase & Co. (ticker: JPM) is up about 20% to slightly outperform the broader S&P 500 index of the largest U.S. stocks, and Bank of America Corp. (BAC) is up more than 30% year to date. Unlike in years past, when bank stocks could be relied upon for significant income potential, the current yields of JPM and BAC are both slightly more than 2% at present. If you’re looking for significant yield within the financial sector, then, consider these lesser-known stocks that all offer more than 3% yields and have done just as well if not better than most of their peers.
AllianceBernstein Holding (AB)
If you’ve been investing long enough, you’ve undoubtedly heard of Wall Street icon AllianceBernstein. The asset management firm provides research and investment services to high-net-worth and institutional clients, including corporate and government pension plans, trusts and estates, and business entities offering 401(k)s and other services to employees. That kind of expertise always has a place in money management, but amid the crazy volatility of the last year or so, AB became an even more important partner in helping big investors understand what was going on. Amid continued uncertainty about challenges in the “new economy” — with remote work as the norm and global climate change reshaping many legacy industries — expert advice seems to be more important than ever. Earnings and revenue are trending steadily higher as AB continues to grow its assets under management, powering a generous dividend that is more than four times that of the typical stock in the S&P 500.
Current yield: 6.59%
CI Financial Corp. (CIXX)
As mentioned in U.S. News’ roundup of the best international dividend stocks, Canada has really shined in 2021, thanks to the resource-rich nation benefitting from commodity price inflation. Just as timber, mining and energy companies in Canada have been on the upswing, so has Toronto-based CI Financial Corp. The company is among Canada’s largest asset managers, offering everything from mutual funds to exclusive hedge funds limited to high-net-worth individuals. So far in 2021, CIXX stock is up about 45%, thanks to the largesse north of the border — but U.S. investors who want to share in this trend can at least tap into generous CIXX profit sharing via its reliable 14-cent quarterly dividend.
Current yield: 3.29%
First Horizon Corp. (FHN)
Nearly $10 billion regional bank First Horizon is a “goldilocks” financial stock that is neither so large that it’s mature and stagnant nor so small that it is undercapitalized. With about 500 physical locations and operations in 18 states, Memphis-based bank First Horizon offers everything from home equity loans, commercial real estate offerings, investment advisory services, credit cards and retail banking services that include certificates of deposit, or CDs, and checking accounts. Proof of its long-term income potential comes via the fact that distributions have more than doubled from 7 cents at the end of 2016 to 15 cents today — and the fact that shares have outperformed with 30% gains year to date in 2021 is just the icing on the cake.
Current yield: 3.64%
Navient Corp. (NAVI)
College loan giant Navient saw plenty of volatility a year or two ago, both related to discussions of student debt forgiveness and fears that the pandemic would undercut borrowers’ ability to repay. However, the financial firm’s 16-cent quarterly dividend went uninterrupted through it all. And while NAVI stock has admittedly underperformed other financial stocks over the last several years, the lender is actually up about 180% in the last 12 months after recovering from a steep pullback in spring 2020. A decent dividend and strong momentum lately make NAVI worth a look.
Current yield: 3.3%
Old Republic International Corp. (ORI)
Insurance provider Old Republic isn’t a particularly interesting stock, to be honest. It offers various home and auto policies, along with extended warranties and title insurance for mortgage lenders. This nearly 100-year old company isn’t on the list because of its dynamic business model but rather because of how rock-solid and reliable it is. Specifically, in regards to dividends, Old Republic has paid shareholders without interruption for 79 consecutive years. On top of that, it has raised its dividend for 39 consecutive years running for one of the best track records on Wall Street. With a dividend more than twice that of the S&P 500 and gains of nearly 60% in the last 12 months, ORI should be plenty interesting to income investors.
Current yield: 3.49%
Prospect Capital Corp. (PSEC)
Prospect Capital is a business development company, or BDC, that specializes in identifying midsize companies that it sees as prime targets for buyouts, restructurings or recapitalization efforts. One of the tools in its toolbox are so-called “unitranche” loans, where it’s not just the first-lien lender but in fact the only financial firm that has extended credit to a company. This gives it greater control, and with experienced analysts, PSEC has expertise in identifying candidates that are worth lending to. Shares are up an impressive 65% in the last year, but even more attractive to income investors should be the fact that Prospect pays a 6-cent dividend on a monthly basis to provide steady and reliable cash flow to shareholders that is more than six times that of the typical S&P stock.
Current yield: 8.8%
Valley National Bancorp (VLY)
Valley National Bancorp operates about 230 retail banking centers located in New Jersey, New York, Florida and Alabama. The roughly 100-year-old financial institution centers its activities around traditional products like checking accounts and services to small and medium-sized businesses. Now, since VLY is valued at just more than $5 billion, while megabanks like JPMorgan Chase are valued at nearly $500 billion, there are many things that Valley National simply cannot do. However, low-risk income investors may actually find comfort in the lower-profile but more reliable business lines this community bank provides. Besides, in addition to its reliable 11-cent quarterly payday, this bank has performed nicely in 2021, surging nearly 30% this year after buying out another New York-area community bank to broaden its operations modestly.
Current yield: 3.37%
Seven bank stocks to buy for the dividends:
— AllianceBernstein Holding (AB)
— CI Financial Corp. (CIXX)
— First Horizon Corp. (FHN)
— Navient Corp. (NAVI)
— Old Republic International Corp. (ORI)
— Prospect Capital Corp. (PSEC)
— Valley National Bancorp (VLY)