Third purchase in April – Financial sector stocks

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Man, confused by online banking, thinks he can use his monitor like an ATM.
Last Tuesday I made my third Sharebuilder automatic purchase in April and I added to existing positions in the Financial sector.

I’ve not had much time to look outside my currently held stocks for the last couple of weeks as I’ve been busy working through a backlog of Dividend Champions as well as working on the site itself.

Around 6% of my total annual dividend income from stocks comes from the Financials sector at the moment; I want that value to be nearer 7% per my dividend portfolio sector allocation so I’m adding to companies I hold in the Financial sector.

The Financial sector

The Financial sector consists of companies offering financial services ranging from banking & investments to insurance. The sector is not the home of long term dividend paying stocks that you might think it would be, given the nature of the financial industry to seemingly melt down every few years with some crisis or complex trading scheme.

My Financial sector stocks

I currently own 4 companies in the Financial sector: JPM, AXP, TROW and CB.

JPMorgan Chase (UPS)

JPMorgan Chase (JPM) is a $234B bank and financial services company. Notable for its colorful CEO, as one of the largest US banks it is under close scrutiny by regulators and is recovering from legal issues resulting from Bear Stearns, Washington Mutual and the 2012 London Whale incident.

The company has increased its dividend for 5 years since 2010. Its payout ratio is 33% with a current dividend yield of 2.5%. The last 5 years’ annualized dividend growth from 2009 to 2014 is about 51% – a high number since it resumed paying dividends in 2010 with a low initial amount.

Its P/E of 12 is lower than the S&P 500 average of 19.1. For the most part of the last ten years, the P/E has been significantly below the S&P average; exceptions being 2004 & 2008 when low earnings increased the P/E ratio to 22 and 40 respectively. Currently this year the P/E is similar to last year’s level. 5 year estimated EPS growth is 7.7%.

American Express (AXP)

American Express (AXP) shouldn’t need any introduction being one of the world’s major credit card companies, although less accepted in Europe than Visa / MasterCard. It’s a $78B company that’s been under pressure of late after losing some big customers such as Costco.

It has a current dividend yield of 1.3% which has increased for the last 3 years and is backed by a low payout ratio of 18%. Over the previous 5 years the dividend growth has been 7.6%.

AXP has a lower P/E of 13.9 vs. the S&P of 19.1. Since 2007, its P/E has been lower than the S&P except for 2010 when it reached 26 from low earnings. For the last two years, its P/E has been the same as the S&P average; its current P/E value is significantly lower due to lower expectations. Estimated 5 year EPS growth is 8.8%.

T. Rowe Price Group (TROW)

T. Rowe Price Group (TROW) is one of the largest publically held mutual fund companies with a $21B market cap. The company offers a wide range of low cost mutual funds as well as managing investment accounts.

It has increased its dividend each year over the last 27 years. The current dividend yield is 2.5% with a payout ratio of 45%. TROW’s dividend growth over the last 5 years has been about 14%.

The company has a P/E of 18, lower than the S&P’s average of 19.1. Historically since 2004, the TROW’s P/E has always been higher than the S&P’s, so this year’s equal P/E level is a significant change from that trend. Estimated 5 year EPS growth is 12.2%.

Chubb Corp (CB)

Chubb Corp (CB) is a $23B holding company which manages property and casualty insurance. It’s a dividend champion, having increased dividends for each of the last 32 years.

The current dividend yield is 2.2% with a 24% payout ratio. The dividend growth over the last 5 years has been 8.3%.

The company has a P/E of 11.7 which is lower than the S&P’s 19.1. In fact the P/E has been significantly lower than the S&P’s average each year since 2004. The gap has increased again since 2012 when CB’s P/E was closing in on the S&P average. Estimated 5 year EPS growth is 4.3%.

What to buy?

AXP and CB’s dividend yields are too low currently; I look for at least 2.25% as a minimum. I bought AXP when I first started investing based solely on the brand, and while it’s done well since then I’m considering to sell it due to its low yield.

Between JPM and TROW, which have similar yield, JPM has the better payout ratio but TROW has better long-term stability in my opinion.

Here’s the outcome visually.

#Yr Yield DivGr5 P/O% EstGr5 Projected Score Status
AXP 3 1.35 7.6 18.7 8.8 8 0 Hold
JPM 5 2.53 51.6 33.3 7.6 16 32 Buy
TROW 27 2.51 14 45.7 12.2 17 41 Buy
CB 32 2.19 8.3 26.5 4.3 13 0 Hold

My purchases this week

So my Sharebuilder purchases on Tuesday earlier this week were:

  • 3.6136 shares of TROW @ $83.019 ($300)

This purchase should increase my projected yearly dividend income by $7.5.

 

Quote of the day

I sincerely believe… that banking establishments are more dangerous than standing armies.

Image courtesy of Naypong at FreeDigitalPhotos.net

0 thoughts on “Third purchase in April – Financial sector stocks”

  1. No intention to buy some on my end but TROW has been very popular in the dividend bloggers community and I can see why! Looks like a solid company with proven quality.

    1. Hi DGJ,

      I’m always dragging my feet when buying stocks in this sector as I mentioned in a comment above! I weight the Financial sector lowest in my portfolio as it seems to be one of the more unstable sectors.

      Best wishes,
      -DL

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