Investor sentiment is fairly volatile right now, which isn't surprising given that the markets keep going in and out of bear territory. There are plenty of reasons to be worried, from the fear of an economic slowdown to outsized inflation. But bad times have historically been followed by good times on Wall Street, so it pays to think about what happens when sentiment turns higher again. If you do, you'll probably find Simon Property Group (SPG 0.05%), Bank of Nova Scotia (BNS 0.36%), and T. Rowe Price (TROW 0.01%) attractive today.
If you've got $1,000 available that doesn't need to go toward paying bills, paying down short-term debt, or boosting an emergency fund, you might want to consider putting it toward these three ultra-high-yielding finance stocks. Here's why.
1. Things are going just fine
Real estate investment trust (REIT) Simon Property Group owns around 200 or so enclosed malls and factory outlet centers. Its portfolio spans the globe and is concentrated in areas with large numbers of people and high average incomes. There have been a few headwinds to deal with in recent years, including the increasing use of online shopping and mall closures related to the social distancing requirements in 2020 during the early days of the coronavirus pandemic. The company cut its dividend in 2020, so the headwinds were very real issues to consider.
However, the dividend has increased six times since the cut. That strongly suggests that the business is on the mend. And perhaps more importantly, occupancy is increasing, with this figure jumping 1.7% year over year in the third quarter to a healthy 94.5%. Rents have also been heading higher, increasing 1.7% year over year. This is not a struggling business, but these really interesting facts take the story out to 2023 and 2024. During Simon's third-quarter 2022 earnings conference call, management highlighted continued strong leasing demand. So more leases are likely to be signed, and occupancy rates could keep moving higher. It can take a long time to open a store, though, so the strong performance is likely to linger into 2023 and even 2024. Meanwhile, with the stock down nearly 30% so far in 2022, you can collect a huge 6.2% dividend yield while you wait for investors to catch up to the good news.
2. Ready for the hit and future growth
Bank of Nova Scotia, also known as Scotiabank, is one of a handful of dominant Canadian banks. Because of the highly regulated Canadian market, its industry position is largely entrenched. That regulation has also led to a fairly conservative business approach, noting that the company's Tier 1 Capital Ratio, a measure of a bank's ability to deal with adversity, is a solid 11.4% (higher numbers are better). For reference, Bank of America's Tier 1 ratio is 11%. That's important today because investors are worried about the potential impact of a global recession, which would reduce demand for bank services and would likely increase delinquencies. Bank of Nova Scotia appears ready to handle that hit.
What's more interesting, if you think long term, is that rising interest rates, which might usher in the feared recession, also allow banks to charge higher rates for their loans. So this period is a mixed blessing that could improve profitability over time. And then there's the fact that Bank of Nova Scotia has differentiated itself from its peers by investing in South America. This region is expected to grow more quickly than the United States or Canada, where the other large Canadian banks are focused. With a 6.2% yield, the long-term risk/reward balance here seems tilted in investors' favor. Oh, and dividends have been paid consistently since 1833 and have increased in 42 of the last 45 years, so this high-yield stock is a pretty reliable income source.
3. What goes down
There's no way to candy-coat it; this was a terrible market for T. Rowe Price. But that's true of every bear market because the company earns fees based on the value of the assets it manages for other people. When the market goes down, its assets under management fall, too, leading to lower fees. And some people get scared and withdraw their money, further reducing fees. To put a figure on this, assets under management fell nearly $80 billion in the third quarter alone, including withdrawals of almost $25 billion. The company's earnings fell 43% year over year. That's bad.
But here's some positive news: T. Rowe Price has increased its dividend annually for 36 years. That period includes the 2000 tech bust, the Great Recession between 2007 and 2009, and the coronavirus bear market in 2020. This asset manager muddled through tough times before and managed to keep rewarding investors. There's no particular reason to think that trend is about to change, given that the third quarter payout ratio was a reasonable 65%, given the bear market backdrop. And when the market inevitably picks up again and assets under management increase, the company's business will get stronger and stronger. But, thanks to the current performance, the stock is down nearly 50% in 2022, and the yield is up to a mouthwatering 4.6%.
Looking past the negatives
Wall Street is like a pendulum, shifting between good periods and bad periods. Right now, there's a lot of bad news, but eventually, that will pass. Meanwhile, while the mood is dour, investors that see over the horizon to the upturn have some pretty interesting dividend opportunities in front of them. That includes Simon, which is still doing well despite investor fears, Bank of Nova Scotia, which is ready for a downturn and tilted toward fast-growing markets, and T. Rowe Price, which is suffering today, but history suggests the pain is temporary. If you've got $1,000, this trio is well worth your time and research effort.
