Interest rates have been near historic lows for more than eight years now, and with the Federal Open Market Committee maintaining rates at Wednesday’s meeting, it looks to stay that way at least until November.
That’s bad for banks and other financial institutions that rely on healthy interest rates for profits, and they’ve struggled as a result.
With investors shying away from the financial sector, the rest of the market is doing assuredly better. As the S&P 500 Index sits near all-time highs, however, the financial sector is one of the few remaining sources of long-term value for investors.
And they’re sure to bounce back when the Federal Reserve inevitably decides to raise rates. Even after Wednesday’s decision, the Fed remained positive that the case for a rate hike has strengthened.
Here’s a look at seven overlooked value stocks in the financial sector with tantalizing dividend yields:
Financial Value Stocks to Buy: BB&T (BBT)
Dividend Yield: 3.2%
Like all banks, BB&T Corporation (NYSE:BBT) has felt the pressure of low interest rates on its net interest margin. A recent Reuters poll of economists found that 70% expect the Fed to resume hiking rates in December. Rising rates should be good news for all U.S. banks, as it means they can realize a greater net margin between interest paid and interest paid out to its lenders.
In the meantime, BBT has still found a way to grow revenue nearly 20% since 2011. At a forward price-earnings ratio of only 12.4 and a P/FCF of 9.7, the stock still looks cheap at this point. BBT pays investors a 3.2% dividend, and with a payout ratio of only 41%, that dividend looks fairly secure.
In terms of security, BBT is one of the banks subjected to the Federal Reserve’s annual stress test and CCAR. That means that regulators comb through the bank’s balance sheet on an annual basis, another reassuring sign. Finally, in the event of a wide-spread market selloff, BBT’s beta is only 1, meaning it is unlikely to be more volatile than the overall market.
Financial Value Stocks to Buy: Canadian Imperial Bank of Commerce (CM)
Dividend Yield: 4.7%
From a value perspective,Canadian Imperial Bank of Commerce (USA)(NYSE:CM) has
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