Make no mistake, Wells Fargo is one of the best performers in Big Banking. It's a juggernaut in mortgage lending, an activity that has helped lift overall profitability, and sustain a dividend that now yields 3% -- beating the 2.2% average yield of dividend-paying stocks on the S&P 500 index.
But if we look at the company purely from an income investor's point of view, it's not the best dividend payer in the financial sector. Other stocks in the industry offer richer payouts and have better potential to keep delivering for their shareholders, in my opinion.
With that in mind, here are a pair of financials I believe are more attractive buys for dividend investors than Wells Fargo.
Toronto-Dominion Bank (NYSE:TD)
This sturdy Canadian lender -- and longtime dividend payer -- distributes a payout that, at current exchange rates, yields almost 1 percentage point more than Wells Fargo. It also eclipses Wells' fellow incumbents JPMorgan Chase and Bank of America, and highly regarded regionals like U.S. Bancorp.
That alone would be reason enough to give Toronto-Dominion Bank serious consideration for investment, but the company has a lot more going for it. One major positive is its ambitious expansion plans, which have vaulted it into the top 10 of American banks, both by number of branches and total assets.
It isn't easy, in these digital days, to build out a bricks-and-mortar network while staying comfortably in the black. But Toronto-Dominion Bank has managed to do so very effectively -- its attributable net income has increased robustly and consistently of late, rising from CAD 5.9 billion ($4.4 billion) in 2011 to CAD 7.9 billion ($5.9 billion) last year.
Meanwhile, other important line items -- total assets, deposits, and loans -- have all risen sharply.
I think the bank can keep adding to the pile. It's got plans to push more assertively into potentially lucrative segments like credit cards and wealth management, and given its track record it'll probably be successful. And a bigger pile will help keep that dividend up, and its yield generous.
I'm venturing out on a limb here to recommend this specialty REIT, which concentrates on leasing buildings to the medical profession.
Because the massive baby boomer generation is entering its retirement years, demand for these types of facilities is very strong. It's also sustainable; the percentage of this country's population aged 65 and older is expected to triple by the year 2050.
HCP is a pariah stock these days, as the REIT delivered guidance for its fiscal 2016 that came in well under expectations. This is largely due to the struggles of one big tenant responsible for nearly a quarter of total revenue, HCR ManorCare.
That company's financial difficulties led HCP to book an impairment charge of $817 million in its most recently reported quarter, resulting in an exceedingly uncharacteristic net loss.
But HCP still managed to increase its adjusted funds from operations (a key metric for REITs), so obviously its business outside of HCR ManorCare is robust.
The resulting share price battering has increased HCP's dividend yield dramatically, to 7.7%, a level unseen since the late 2000s. With the REIT's strong track record over many years and the obvious potential for future growth, that's unsustainably high.
HCP will find a way to solve the HCR ManorCare problem. While it does, investors have a rare chance to pick up a star financial on the cheap ... and earn a meaty dividend in the process.