Financial Stocks: Some Bigger Dividends Are on the Way

One dividend, for example, is being quintupled.

Apr 3, 2014 at 5:15PM

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some financial stocks to your portfolio but don't have the time or expertise to hand-pick a few, the Fidelity MSCI Financials Index ETF (NYSEMKT: FNCL) could save you a lot of trouble. Instead of trying to figure out which stocks will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. This ETF, focused on financial stocks, sports a very low expense ratio -- an annual fee -- of 0.12%. The fund is new and small, though, so if you're thinking of buying, beware of possibly large spreads between its bid and ask prices. Consider using a limit order if you want to buy in.

This financial-stocks ETF, launched in late 2013, is too young to have a sufficient track record to assess. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why financial stocks?
If you expect the financial sector to do well over time as it continues to recover from the meltdown of several years ago, you might want to consider financial stocks for your portfolio. Remember, for example, how successfully banks can levy fees and generate income, no matter what regulations are thrown at them.

More than a handful of financial stocks had strong performances over the past year. Prudential Financial (NYSE:PRU), for example, surged 49%, though it took a bit of a hit recently, as some worry about increased governmental oversight, with Prudential being named a "Systemically Important Financial Institution." Prudential itself is worried about that, and it joined with some peers to lobby Washington for special considerations for non-bank financial institutions such as insurers. Prudential stock yields 2.5%.

Bank of America Corporation (NYSE:BAC) popped 43%. It recently got a go-ahead from the Federal Reserve to hike its dividend fivefold -- it will then yield around 1% -- and to engage in share buybacks as well. The company saw its income soar in 2013. Still, it's not the most loved bank, and it faces higher borrowing costs than some of its peers, making it riskier. It also faces legal wranglings. The Securities and Exchange Commission, for example, is suing Bank of America, alleging that it sold faulty residential mortgage-backed securities.

BB&T Corporation (NYSE:BBT) jumped 36%. It's a sizable Southeastern regional bank, and its fans admire its relative simplicity and conservative nature, along with its healthy balance sheet. Oh, and let's not forget its 111 years of dividend payments. (The stock yields 2.3%.) BB&T never lost money during the recent financial crisis, and it has gained the Fed's approval for a "conservative" dividend hike following stress tests. Its CEO got a pay cut last year, when the bank posted some disappointing numbers.

Other financial stocks didn't do quite as well over the last year, but they could see their fortunes change in the coming years. Citigroup (NYSE:C), for example, gained just 8.5% and yields 0.1%. While most banks subjected to recent Federal Reserve scrutiny passed its stress tests, Citigroup was among the minority that had its capital spending plan rejected. One reason was dissatisfaction at the Fed with how Citigroup projects its losses. Meanwhile, my colleague John Maxfield has warned about nearly $19 billion in "potentially toxic home equity lines of credit" that are soon coming due.

The big picture
If you're interested in adding some financial stocks to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Nine Rock-Solid Dividend Stocks You Can Buy Today
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Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America and Citigroup. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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