The return of the average financial stock is only 1.5%. And if you’re willing to buy good companies that work through likely temporary problems, you can earn much higher returns.
At this point, long-term investors looking for high returns should take a closer look T. Rowe Price (NASDAQ: TRW), Toronto Dominion Bank (NYSE:TD)And W. P. Carey (NYSE:WPC). Here’s a brief primer on each of these high-yield stocks.
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T. Rowe Price is an asset manager. It charges fees to provide financial services to customers who buy its mutual funds, exchange-traded funds (ETFs) and other investment products.
The most important figure for investors here is assets under management (AUM), which rises and falls as customers deposit and withdraw money and as the market goes up and down. The market usually has more impact than the cash flows from customers. In fact, customers tend to stick around for a long time because moving money between financial services providers is a difficult and time-consuming task. In other words, T. Rowe Price, in some ways, has a kind of annuity business.
That said, T. Rowe Price’s historical strength is in mutual funds, a product type that is being supplanted by ETFs and alternative assets. That’s not good, and it’s making investors concerned about the stock. However, assets are sticky and management is shifting to customer focused areas.
This suggests that T. Rowe Price will eventually adapt to the changing dynamics in the sector. And it has more than enough financial power to renew its operations, noting that the company has no long-term debt on its balance sheet.
That’s why the 38-year dividend streak isn’t likely to end anytime soon, and why long-term dividend investors can have confidence in the hefty 4.4% dividend yield.
Toronto-Dominion Bank, commonly referred to simply as TD Bank, is the second largest bank in Canada by deposits. It is the sixth largest bank in North America if you consider its American activities. And a dividend has been paid every year since 1857!
Note that neither the Great Depression nor the Great Recession ended this series. TD Bank knows how to deal with tough times.
And the Canadian banking giant, which has a hefty dividend yield of 5.3%, is facing tough times today. To be fair, the pain is self-inflicted, as the company’s U.S. operations have failed to detect and stop money laundering. This has cost the company financially and reputation.
But the biggest problem is that TD Bank is now under an asset ceiling in the United States, which will actually hinder the bank’s growth plans. While the Canadian operations remain unaffected, U.S. expansion was expected to be TD Bank’s growth engine. It will take time to regain the trust of regulators and investors.
However, you get paid very well while you wait for this survivor to muddle through hard times again. And if more than 100 years of history is any guide, TD Bank will weather this crisis.
When it comes to tough decisions, WP Carey’s choice to reinstate the dividend after 24 consecutive annual dividend increases must have been a difficult one. But it was the right move for the Real Estate Investment Trust (REIT), as jettisoning its office portfolio (which accounted for as much as 16% of rents) removed a huge headwind for business.
Unfortunately, the departure could not be achieved without a dividend cut. That said, you know it was a reset and not a cut because WP Carey went right back to normal quarterly increases the quarter after the reset. This was a strategic decision to better position the REIT for the future. But investors are still concerned, not unreasonably, and the yield is a lofty 6.3%.
What remains after the change is a REIT with a heavy weighting in industrial assets (64% of rents), a modest exposure to retail (22%) and a diverse collection of other assets (12%). It also has notable investments outside the US market, accounting for 41% of rents.
Simply put, WP Carey is one of the most diversified REITs you can buy. And the exit of the office also leaves the company with money to invest in future growth opportunities. If you can accept that the dividend cut was really just a reset, this is a high-yield stock that even conservative dividend investors will likely want to own.
Every company faces tough times and must figure out how to survive or else they will be thrown into the trash bin of Wall Street. Right now, T. Rowe Price, TD Bank and WP Carey are all facing headwinds. However, they are all good companies with a solid history of struggling through tough times. Add to that the well-above-average returns each of these stocks offer, and one of these stocks could find its way into your portfolio this November.
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Reuben Gregg Brewer holds positions at Toronto-Dominion Bank and WP Carey. The Motley Fool recommends T. Rowe Price Group. The Motley Fool has a disclosure policy.
The 3 Best High Yield Financial Stocks to Buy in November With Yields As High as 6.3% was originally published by The Motley Fool
