In my opinion, the best investments are those that provide both current income and significant potential for long-term growth. With many of the financial sector stocks trading at historically cheap valuations, it seems like a good place as any to look for bargains on great investments. Here is a list of five stocks that I believe will significantly outperform the market in the coming years, while providing you with a steady, growing stream of dividends in the meantime.
A fast-growing area of the financial sector
CME Group (NASDAQ:CME) is one of the largest options and futures exchanges in the world, owning a portion of the Dow Jones indicesin addition to the derivatives and futures exchanges it operates.
On the growth side of things, CME Group has already performed quite well, with earnings projected to increase at an average annual rate of 13% over the next three years, due to the increasing popularity of futures and derivatives trading as both a hedging tool and for speculative reasons as well.
With a yield of just over 2.4%, CME isn't exactly churning out cash. However, this dividend has grown from just 13 cents per share a decade ago to $1.80 today, translating to an average annual increase of about 30%. While a rate like this won't be sustainable forever, it does represent a willingness of CME's management to increase the amount of capital it returns to shareholders as the company matures.
A safe bank stock?
BB&T Corp (NYSE:BBT) is the 11th largest U.S. bank in terms of assets. Although BB&T trades at a valuation premium to its peers, this company has an excellent history of profitability, and a very high-quality loan portfolio.
Even during the worst years of the financial crisis, BB&T never lost money, earning a profit of $1.15 in its worst year (2009). As a result, its share price never really plummeted, nor was it ever in any real danger of failing.
BB&T has done an excellent job of growing itself, increasing its total assets by 84% over the past 10 years. Even better, there's still plenty of room for growth. Currently, most of BB&T's branches are in the Southeast, but I wouldn't be surprised to see the company expand its geographical presence if things keep going well.
BB&T's 2.5% yield won't make you rich overnight, but if the bank keeps growing like it has, the dividends should grow and compound nicely over time, providing shareholders with excellent returns.
North America's "Most Convenient Bank"
Toronto-Dominion Bank (NYSE:TD), or "TD Bank", is based in Canada, where some of the most rock-solid financial institutions in the world can be found. TD Bank has grown tremendously over the past decade by a combination of acquisitions and an excellent reputation for customer service. Known as one of the most convenient banks in the world, TD Bank has some of the longest extended hours of any banking institution, with operating hours extending to midnight in some locations.
As a result of their excellent reputation and acquisitions, TD Bank has grown its assets tremendously, from $255 billion to almost $1 trillion in less than 10 years. Shareholders have done very well, as TD Bank's stock price has nearly tripled over the past decade as has its dividend.
In regards to safety, consider that TD Bank was one of the only financial institutions based in North America that not only didn't cut their dividend during the financial crisis, but raised it each and every year, at an average increase of 12% each year for the past decade. Currently yielding around 3.6% annually, I feel pretty confident that we'll see similar increases in the years ahead.
Foolish final thoughts
While this is by no means a complete list of banks that pay decent dividends and have growth potential, these are three excellent companies that offer an excellent level of safety -- as well as some exciting potential. With excellent management, high-quality assets, and growing customer bases, these are three stocks that should be excellent investments for as long as you keep them!
Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.