The Financial Services Sector includes insurance companies, banks, brokerages, mutual funds and other similar companies. Before the 2008-09 financial services meltdown, these stocks were the cornerstone on many income portfolios. The companies were flush with cash, the stocks provided relatively high yields, good dividend growth rates and carried very little perceived risk.
Unfortunately, things are not always as they seem. Under the surface banks were making questionable loans, while investment firms were creating and peddling exotic financial instruments. In effect, their CEO's were building houses of cards in a hurricane - it was destined to come tumbling down, and it did.
As a result, investors learned some very valuable, but expensive lessons. This should serve as a warning when investing in the Financial Services Sector - not a stop sign. Many of these companies are now in very lucrative positions.
With interest rates as low as they are, banks are enjoying decent spreads, not to mention all the new fees they are charging their customers. As more consumers take advantage of electronic banking, we are becoming more tied to our accounts. The pain threshold of changing banks is high, and they know it.
Have you ever filed an insurance claim and were satisfied with the outcome?
Insurance companies are the ultimate business. They charge premiums to protect you. Then take the premiums, invest them and earn a return, which is then reinvested. The money is theirs to keep if you don't file a claim. If you do file a claim, the insurance company will find ways to minimize what they actually pay you - then raise your rates for filing a claim.
You can complain about these companies, or invest in the industry and profit from them. I've chosen the latter.
This week week, I screened my dividend growth stocks database for Financial Services companies with a yield at or above 4% and have increased their dividends for at least 14 consecutive years. The results are presented below:
Mercury General Corp. (MCY)
Yield: 6.2% | Years of Dividend Growth: 24
Mercury General Corp.