Our recent look at safe-haven dividend stocks honed in on regional banks that are primed to take advantage of an imminent rise in interest rates.
But as we mentioned, regional banks aren’t the only companies whose balance sheets will benefit. In addition to the regionals, other financial companies are able to move from normalized business activity as they pertain to interest rate investing.
Among the quality dividend stocks in the finance industry, insurance companies stand out as another sub-sector of attractive alternatives. Like regional banks, insurers often benefit from balance sheet revenue expansion when interest rates go on the rise.
This, combined with growing signs of the “wall of worry” insurance companies must climb, has us bullish on a number of stocks in the space.
As a note: While all these insurance companies do offer a regular payout, these aren’t super-high-yielding companies — they offer modest dividends between 2% and 3%, but we like them for their combination of income and the ability to pounce on rising rates.
Insurance Companies to Buy: Principal Financial (PFG)
PFG Dividend Yield: 2.9%
Principal Financial (PFG) currently holds a “buy” rating from our proprietary model. The rating is based on strong technical trends, which should provide support for PFG to move higher. Principal has has spent much of the year trading in a tight range, but recent activity suggests that shares are ready to break out.
Investor sentiment is relatively pessimistic, making this a smart contrarian selection. Analyst ratings currently stand at only 41% buy recommendations, and short interest is nearing its highest readings for the last two years. The negative sentiment is likely to unwind as buying power as the stock breaks higher.
With a dividend yield of nearly 3%, PFG should gain the attention of income investors that are also looking for stocks that are prepared to beat the market’s gains.
We’re targeting a move from $53 to the $60-$65 range before year’s end.
Insurance Companies to Buy: Metlife (MET)
MET Dividend Yield: 2.7%
Metlife (MET), largely the most well-known of these insurance companies, has spent the past week making a break to the upside, and the Behavioral Valuation profile and rating for the stock suggest that MET is set to move much higher.
As of today, shares are trying to break through the $56 level, which represents the top of the range that stretches back to December. A confirmed break above this price would be the catalyst for a larger move as short sellers would be pushed into covering their positions, creating a short covering rally. We also would be more likely to see analysts upgrade their outlooks for the stock, which would draw additional buyers from the crowd.
The intermediate-term outlook is improving from a technical perspective, as MET stock just completed a golden cross, with the 50-day moving average climbing over the 200-day — that’s a pattern that typically signals future bullish movement.
Metlife yields 2.7% while possessing the qualities we look for in a growth leader. Our expectations for MET are for a push to new highs by the end of 2015.
Insurance Companies to Buy: Everest Re (RE)
RE Dividend Yield: 2.1%
Property and casualty insurer Everest Re (RE) has posted returns of 14% over the last 12 months, compared to the S&P 500’s gain of around 9%. The relative strength has apparently gone unnoticed, though, as RE is one of the least recommended stocks among publicly traded insurance companies. As of this week, only 18% of the analyst covering the stock have it ranked a “buy.”
However, with RE stock constantly setting new highs since 2012, we’re almost sure to see upgrades at some point, which will continue the cycle.
Shorts have been betting against the trend, as RE’s short interest ratio is sitting at two-year highs. The high short interest ratio suggests that Everest will engage in a short covering rally on the next move higher.
We see the trigger price for this rally at the $185 level, and a target of $200.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
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