Updated on October 26th, 2023
Interest rate hikes have dominated financial conversation since the Federal Open Market Committee (FOMC) began raising the fed funds target rate in March of this year. The Federal Reserve has a dual mandate set by Congress to keep prices stable and maximize employment.
Earlier this year, the Consumer Price Index (CPI) has reached levels not seen since the 1980s, although inflation has moderated in recent months. There have been a variety of factors that led to rising inflation, including ongoing supply constraints related to COVID-19 and resulting inventory mismanagement, and the sanctions on Russia following its invasion of Ukraine. Rising wages in the U.S. has also stoked inflation.
These factors have all played a role in the price increases in basic needs ranging from energy to food to housing.
In order to tame inflation, the Federal Reserve has raised the federal funds multiple times in the past few years. The Fed Funds rate is now at a 22-year high range of 5.25% to 5.5%.
These hikes aim to quickly get inflation down to the Fed’s target rate of 2.0%. Inflation eats into purchasing power, which could ultimately lead to a recession as consumers can acquire fewer goods and services per unit of currency.
With a higher federal funds rate comes higher borrowing costs. This is especially painful for heavily indebted businesses. When it comes time to refinance debt, these businesses will be forced to do so at much higher rates. This could lead to bankruptcies, and weaken the economy and job market.
There are, however, sectors of the economy where rising interest rates could be a tailwind. The financial sector, particularly the banking industry, should be a prime beneficiary of rate hikes as this directly impacts their net interest income.
If a company is earning more on its loans while paying its depositors the same or even a slightly higher rate for savings accounts, checking accounts, and CDs, then net interest income could rise.
With that in mind, we’ve compiled a list of more than 200 financial stocks, along with important investing metrics such as P/E ratios and dividend yields.
The financial stocks list is available for download below:
![](https://www.suredividend.com/wp-content/uploads/2022/11/Financial-Stocks-1-e1667937482844.png)
This article will examine eight companies that are seeing a material benefit from interest rate hikes. All of these companies pay dividends to shareholders and have positive expected returns over the next five years.
They are listed in no particular order.
Table of Contents
#1: JPMorgan Chase (JPM)
Our first stock is JPMorgan, which was founded in 1799 as the first commercial bank in the U.S. Since then, the company has grown into a global banking behemoth with a market capitalization of $386 billion that has annual sales of nearly $130 billion. JPMorgan competes in every major segment of financial services, including consumer banking, commercial banking, home lending, credit cards, asset management, and investment banking.
JPMorgan posted third quarter earnings on October 13th, 2023, and results were much better than expected on both the top and bottom lines.
Source: Investor Presentation
Earnings-per-share came to $4.33, which was an impressive 39 cents better than estimates. Revenue soared 22% year-over-year to $39.9 billion, which beat consensus by almost half a billion dollars.
JPMorgan currently yields 3.0%, has raised its dividend for 12 consecutive years, and has a projected payout ratio of 25% for the year. The stock’s yield is almost twice that of the average yield of 1.7% for the S&P 500.
Click here to download our most recent Sure Analysis report on JPMorgan & Chase Co. (preview of page 1 of 3 shown below):
#2: Synchrony Financial (SYF)
Next is Synchrony Financial, a consumer financial services company that operates three business segments, including Payment Solutions, Retail Credit, and CareCredit. The company offers a range of services to its customers, including, but not limited to, private label credit cards, small-size business credit products, promotional financing for higher-priced consumer goods, and promotional financing for healthcare products. The company had its IPO in 2014.
Synchrony Financial reported its second quarter earnings results on July 19.
Source: Investor Presentation
The company managed to generate revenues of $3.3 billion during the quarter, which was up by 15% versus the previous year’s quarter, which was better than expected. The company saw purchase volumes stay flat year over year, while core purchase volumes grew faster, by 6% year over year. Synchrony Financial generated earnings-per-share of $1.32 during the second quarter, which beat the analyst consensus estimate by $0.07.
Synchrony Financial is projected to grow earnings-per-share by 3% annually through 2028. Shares of the company yield 3.6%, and the projected payout ratio for the year is very low at 20%. Synchrony Financial has a dividend growth streak of just two years after the company paused its dividend growth in 2021.
Click here to download our most recent Sure Analysis report on Synchrony Financial (preview of page 1 of 3 shown below):
#3: KeyCorp (KEY)
The third stock is KeyCorp, which has been in business for 190 years and has transformed into a leading regional bank with $190 billion in assets. The company has operations in 15 states, providing customers with 1,300 ATMs and 1,000 full-service branches. KeyCorp offers personal, small business, commercial, and corporate banking in addition to wealth management.
In mid-October, KeyCorp reported (10/19/23) financial results for the third quarter of fiscal 2023. Deposits grew 1.7% but loans decreased -2.5% sequentially and net interest margin continued to shrink, from 2.12% to 2.01% due to a higher cost of deposits. As a result, net interest income fell 6%.
Source: Investor Presentation
However, provisions for loan losses plunged more than 50% thanks to an improving sentiment in the financial sector after the turmoil earlier this year. As a result, earnings per-share rose from $0.27 to $0.29 and exceeded the analysts’ consensus by $0.02.
The dividend yield for the stock is 8.3%. With an expected payout ratio of 70% for the year, it is likely that KeyCorp’s dividend growth streak of 12 years will continue.
Click here to download our most recent Sure Analysis report on KeyCorp (preview of page 1 of 3 shown below):
#4: Toronto-Dominion Bank (TD)
The next name for consideration is Toronto-Dominion, one of the largest Canadian banks with nearly $2 trillion in assets. The company’s major segments include Canadian Retail, U.S. Retail, and Wholesale Banking. While based in Canada, Toronto-Dominion generates nearly a quarter of its annual revenue from the U.S. The company is valued at $118 billion and produced revenue of $33 billion over the past four quarters.
TD reported fiscal Q3 2023 earnings results on 8/24/23. For the quarter, TD reported revenue growth of 17% to C$12,779 million, but net income came in 8% lower year over year (“YOY”) at $C$2,963 million, leading to diluted earnings per share (“EPS”) decline of 10% to C$1.57. The adjusted revenue growth was 12% to C$13 billion, while the adjusted net income declined 2% to C$3.7 billion. These are likely better metrics for displaying the normal earnings power of this quality bank. Adjusted EPS was C$1.99, down 5%.
Unlike its American peers, the Canadian banks, including Toronto-Dominion, did not cut their dividends during the Great Recession but instead paused growth. Toronto-Dominion has raised its dividend for 12 years. Shares currently yield 5.1%. The payout ratio is forecasted to be 47% in 2023.
Click here to download our most recent Sure Analysis report on Toronto-Dominion Bank (preview of page 1 of 3 shown below):
#5: The Bank of New York Mellow Corp (BK)
Bank of New York Mellon was founded after the American Revolution in 1784 and was the first bank ever to make a loan to the U.S. government. Since that time, the company has grown to be valued at nearly $35 billion and now generates annual revenue of $16 billion. The company offers global investment services with a stated goal of helping clients manage assets throughout their investment lifecycle.
BNY Mellon posted third quarter earnings on October 17th, 2023, and results were better than expected on both the top and bottom lines. Adjusted earnings-per-share came to $1.27, which was 13 cents ahead of expectations. Revenue was $4.37 billion, up 2.1% year-over-year, and $60 million ahead of estimates. The company noted higher interest rates and lower expenses as helping boost results.
Bank of New York Mellon is expected to grow earnings-per-share by 5% per year through 2028. The company has a dividend growth streak of 13 years and offers a yield of 4.0% today. The payout ratio is expected to be 34% for the year.
Click here to download our most recent Sure Analysis report on The Bank of New York Mellon (preview of page 1 of 3 shown below):
#6: Royal Bank of Canada (RY)
Next is Royal Bank of Canada, or RBC. RBC is the largest bank in Canada by market capitalization and offers banking and financial services to customers in Canada and the U.S. The company has five segments:
Personal & Commercial Banking
Wealth Management
Insurance
Investor & Treasury Services
Capital Markets
On 8/24/23, RBC reported its fiscal Q3 2023 earnings results. Compared to the prior year’s quarter, the bank reported revenue growth of 19% to C$14.5 billion. Management put aside a reserve of C$616 million in the form of provision for credit losses (PCL) (that dragged down net income) in response to a more negative macroeconomic outlook in North America (versus a PCL of C$340 million in fiscal Q3 2022). Additionally, non-interest expense rose 23% to $7,861 million.
Net income ended up rising 8% year over year (“YOY”) to C$3,872 million; on a per-share basis, it rose 8.8% to C$2.73. Adjusted net income rose 11% to C$3,957 million, and its adjusted diluted earnings-per-share (“EPS”) rose 11% to C$2.84. The bank’s capital position is strong with a Common Equity Tier 1 ratio at 14.1%, up from 13.1% a year ago.
RBC yields 5% and has an expected payout ratio of 48% for this year. The company has increased its dividend for ten consecutive years.
Click here to download our most recent Sure Analysis report on Royal Bank of Canada (preview of page 1 of 3 shown below):
#7: State Street Corp. (STT)
The next stock is State Street, another financial services company that can trace its roots back to the country’s early days, having been founded in 1792. The company is one of the largest asset management firms in the world, with more than $3 trillion of assets under management and $36 trillion of assets under custody and administration. The company has annual revenue of $12 billion.
In mid-October, State Street reported (10/18/23) financial results for the third quarter of fiscal 2023. Net interest income dipped -5% due to higher deposit costs but fee revenues grew 3% over last year’s quarter, primarily thanks to higher stock market levels, and assets under custody or administration rose 4%. As a result, earnings-per-share grew 7%, from $1.80 to $1.93, and exceeded the analysts’ consensus by $0.10. State Street has exceeded the analysts’ estimates in 18 of the last 19 quarters.
Shares of State Street yield 4.3%, and the company has a dividend growth streak of 14 years, which is the longest of the names discussed in this article.
Click here to download our most recent Sure Analysis report on State Street Corp. (preview of page 1 of 3 shown below):
#8: Ally Financial (ALLY)
The final stock on our list is Ally Financial, which provides financial services to consumers, businesses, automotive dealers, and corporate clients. The company’s segments include Automotive Finance Operations, Insurance Operations, Mortgage Finance Operations, and Corporate Finance Operations.
Ally Financial reported its third quarter earnings results on October 19. Revenues totaled $2.0 billion during the quarter, which was down 2% compared to Ally Financial’s revenues one year earlier. Ally Financial originated $10.6 billion in new consumer auto loans during the quarter and managed to grow its deposits by $7 billion year over year.
At the end of the quarter, deposits totaled $153 billion. The lower revenue generation impacted profits negatively, which was to be expected. Higher provisioning for credit losses further pressured Ally Financial’s profit margins during the most recent quarter. We believe that the company can achieve earnings growth of 3% through 2028.
Ally Financial yields 5.1%. Investors have received a dividend increase for six consecutive years. With a projected payout ratio of 37% for the year, that growth streak should continue.
Click here to download our most recent Sure Analysis report on Ally Financial Inc. (preview of page 1 of 3 shown below):
Final Thoughts
Interest rates have increased at a faster pace than the market has seen in quite some time. The size of the hikes is largely unprecedented, but the Federal Reserve has attempted to cool inflation not seen in decades.
While rising rates can negatively impact some areas of the economy, the financial sector stands to benefit immensely. Above, we identified eight stocks from the sector that have already seen a benefit from higher rates. And with rates likely to continue to go up as long as inflation is high, these names should continue to see strong growth in net interest income.
The following articles contain stocks with very long dividend or corporate histories, ripe for selection for dividend growth investors:
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