4 Financial Stocks Dividend Investors Will Love for 2017

Rising rates mean opportunity for income investors in this hopeful sector

In the last few months, the economic landscape has improved considerably. The worries related to the slowdown in China dissipated, Brexit woes subsided, the job market recovered and equity market touched all-time highs. Further, according to the Federal Open Market Committee (FOMC), inflation expectations have also increased.

So, the stage has already been set for a steady rate hike. Yesterday, unsurprisingly, the U.S. Federal Reserve raised the key interest rates by 25 basis points to 0.50–0.75% from 0.25–0.50%. Simply speaking, majority of the industries hailing from the broader finance sector are likely to benefit from this action.

In addition to approving this hike, the FOMC also anticipates three rate increases in 2017, two or three in 2018 and three in 2019. Myles Clouston, senior director of Nasdaq Advisory Services, said, “Overall, the Fed remains pretty steady overall, looking at gradual raises in interest runs in the long run.”

Rate Hike: Boon for the Finance Stocks

Importantly, in the post-Presidential election period, the prospects of the finance stocks brightened. Trump’s bias for higher rates and less-stringent financial regulations gave a boost to the stocks.

In a higher rate situation, banks with higher commercial loans at floating rate tend to benefit. This is because the banks can boost their net interest margin (a proxy of the difference between the lending rate and the deposit rate). Further, insurance firms and the investment firms also tend to gain in a higher rate environment as the return of these companies held in most risk-free assets increases.

Overall, finance stocks are expected to perform better in the coming months.

Alongside the rate hike impetus, finance stocks with high dividend yield and a good dividend payment track record should be better bets for the investors.

4 Dividend Picks from Finance

We first considered stocks with a solid Zacks Rank and a sound VGM Score. Our research shows that stocks with a VGM Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or #2 (Buy) offer the best upside potential. You can see the complete list of today’s Zacks #1 Rank stocks here.

Now, in order to capture the dividend-paying capabilities, we shortlisted stocks that havea dividend yield of more than 2.5%.

Also, we considered stocks that have a 5-year historical dividend growth rate of at least 5%:

Santa Ana, CA-based First American Financial Corp. (FAF) is a property and casualty insurance company engaged in providing title insurance policies on residential and commercial property, as well as offers related products and services. Over the past 60 days, its current-year estimates moved up 1.3% to $3.01 per share.

  • Zacks Rank: #1
  • VGM Score: B
  • Dividend Yield: 3.62
  • 5 Yr. Hist. Div. Growth: 39.86%

San Francisco, CA-based JMP Group Inc. (JMP) investment bank offers investment banking, equity research and sales and trading services to institutional and corporate clients. Over the past 60 days, its current-year estimates moved up 12.5% to 45 cents per share.

  • Zacks Rank: #2
  • VGM Score: B
  • Dividend Yield: 5.76
  • 5 Yr. Hist. Div. Growth: 36.22%

CM Finance Inc (CMFN), the New York-based asset manager, invests primarily in middle-market companies in the U.S.Over the past 60 days, its current-year estimates moved up 2.6% to $1.17 per share.

  • Zacks Rank: #1
  • VGM Score: B
  • Dividend Yield: 14.06
  • 5 Yr. Hist. Div. Growth: 68.90%

Miami, FL-based WhiteHorse Finance Inc (WHF) business development company focuses on originating loans to privately held small-cap companies across a broad range of industries.Over the past 60 days, its current-year estimates moved up 4.2% to $1.48 per share.

  • Zacks Rank: #2
  • VGM Score: A
  • Dividend Yield: 11.67
  • 5 Yr. Hist. Div. Growth: 11.07%

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