We do not usually think of financial stocks as great growth stocks. That’s a mistake.
Well-run institutions like banks, financial services and insurance companies can grow earnings and book value at fast clips for long periods of time.
Still, financial stocks rarely attract the attention of the momentum crowd, so they can usually be purchased at much more reasonable valuations than companies with similar growth rates in sexier industries.
As a bonus, many financial companies pay decent dividends and have a history of increasing payouts. Owning a portfolio of double-growth companies — where the net worth of the company and the dividend payout are growing — can be very profitable for patient investors.
The following stocks are ideal financial institutions that investors may have overlooked in their quests for growth.
Double-Growth Financial Stocks: Horace Mann Educators (HMN)
Horace Mann Educators (HMN) is a great example of a double-growth stock. HMN sells both life and property casualty insurance, as well as retirement products to teachers, administrators and other employees of public schools.
While not exactly the most thrilling firm, the company has grew book value and dividends at a double-digit rate for years. Over the most recent five years, the net worth of HMN has grown by about 10% annually, and the dividend has increased an average of 31% a year.
HMN stock is trading at just 1.1 times book value and yields 3% at the current price. While it will probably never be a long-term momentum favorite, shareholders should be very pleased with the total return provided by continued double growth over time.
Double-Growth Financial Stocks: Bank of the Ozarks (OZRK)
Bank of the Ozarks (OZRK) has been a leading double-growth stock for year.
OZRK has made a series of smart acquisitions of smaller banks and grown book value of the stock at 23% annually for the past five years. Meanwhile, its dividend has been increased by an average of nearly 50% per year over the same period.
Bank of the Ozarks is regarded as one of the very best acquirers of other banks and the current favorable merger and acquisitions market should allow them to continue to increase their net worth and dividend payout for many years. Although the stock has a higher price-to-book value of 3.1 than I usually like, in this case it works in its favor.
OZRK stock makes for a strong currency to use in buying other banks, and allows them to make purchases on terms that help fuel future growth rates. The high rate of growth in the net worth of the bank and the dividend payment should make this a leading double-growth stock for many years and reward long-term shareholders.
Double-Growth Financial Stocks: ConnectOne Bancorp (CNOB)
ConnectOne Bancorp (CNOB) is another bank that is doing a solid job of growing both the book value and dividend payment since the credit crisis. CEO Frank Sorrentino runs the bank with what he has called an entrepreneurial and customer-centric focus and it has been working very well.
The bank’s net worth has grown by 30% annually, and the dividend payment has been increased by 11% annually over the past five years. The bank just completed a merger that almost doubled its size, and they have been expanding in both the New Jersey and New York markets.
CNOB was growing very nicely before the merger that closed in July, and Sorrentino noted in the earnings release for the quarter ended June 30:
“Earnings momentum continued during the second quarter of 2015 and our strong operating performance was highlighted by second quarter loan growth of $124.5 million, representing an 18.9% annualized sequential growth rate, while deposits grew at an 11.7% annualized sequential rate.”
Given its ridiculously high growth rate, CNOB stock is reasonably priced at 1.2 times book value and yields 1.58% at the current price. The post-merger prospects for ConnectOne should lead to a sustained period of double growth and reward shareholders nicely.
As of this writing, Tim Melvin did not hold a position in any of the aforementioned securities.