It’s safe to say that one of the sectors benefitting the most from the rotation into value and current macroeconomic factors such as the steepening yield curve is the financial sector. These stocks have had quite the rally during the first quarter of the year and there’s reason to believe that they can continue heading higher. Yesterday, many of these stocks rallied on news that The Federal Reserve will end temporary limits on dividend payments and share buybacks for most banks after June 30th if they can complete annual stress tests.
This is very positive news for financial stocks because it is essentially a vote of confidence from the Fed that big banks are in a good financial position at this time. Buybacks and dividends are both important ways that companies can return capital to shareholders and the news might be just what these stocks need to start their next leg higher. Combine this update with all of the other factors that are working in favor of financials and the sector looks poised to continue outperforming. If you are wondering which financial stocks are the best options to consider, keep reading on as we discuss the top 3 financial stocks that you can bank on. Bank of America (NYSE:BAC)
First up is a Bank of America
, the type of stock that could be a core holding in any long-term portfolio. It’s one of the biggest financial institutions in the United States and the largest bank stock investment for legendary investor Warren Buffett’s Berkshire Hathaway. With segments including consumer banking, global wealth and investment management, global banking, and global markets, Bank of America is a diversified financial company that investors should have at the top of their lists when seeking exposure to the financial sector.
Consider the fact that Bank of America is a top-four U.S. credit card issuer, has one of the strongest retail branch networks in the country, and owns Merrill Lynch, which is a very strong name in the U.S. brokerage and advisor industry. It’s also worth noting that Bank of America is more sensitive to interest rates than some of the other financial companies, which means more profits for the company as interest rates rise. The stock offers investors a 1.91% dividend yield at this time and has rallied over 28% year-to-date as of this writing. Wells Fargo (NYSE:WFC)
Wells Fargo is another one of the biggest banks in the U.S. and a great financial stock to add even though the recent fraudulent account scandal did some damage to the company’s brand. With roughly $1.9 trillion in balance sheet assets and a diverse business model including commercial banking, consumer banking, corporate and investment banking, and wealth and investment management, this is undoubtedly a quality name in the financial sector. Keep in mind the fact that it’s a company that will play a key role in the recovery of small and medium-sized businesses and that Wells Fargo’s stock price hasn’t reached its pre-pandemic levels yet, unlike many of the other bank stocks. That means it could be one of the bank stocks with the most upside going forward.
Back in February, the stock surged on a report that the Federal Reserve has indicated approval for the bank’s overhaul plan that involves revamping its risk management and governance. That could be a sign that Wells Fargo
is well on its way towards growing its balance sheet again, and the company could even meet the requirements to lift the Fed’s asset cap by the end of this year. While there is some uncertainty with Wells Fargo in the near term, it’s still one of the best financial stocks to bank on in the long term given its upside potential. Berkshire Hathaway Inc (NYSE:BRK.B)
The final financial stock on our list is the infamous Berkshire Hathaway Inc, a company that probably needs no introduction. Warren Buffett’s holding company offers investors exposure to a wide variety of quality businesses in different industries, and you get some peace of mind knowing that the legendary investor is managing things on your behalf. The stock hit new all-time highs in March and should continue to perform well given that Berkshire’s revenues are economically sensitive and should expand along with the U.S. economy. Keep in mind that Berkshire Hathaway stock has doubled the annual returns of the S&P 500 since 1965 on a compound annual growth rate, which is a staggering statistic.
The company’s top holdings include names like Apple, Coca-Cola, Bank of America, Kraft Heinz, Verizon, General Motors, and American Express, which are all strong businesses to build a long-term portfolio around. Berkshire’s business model is also very intriguing, as the company generates revenue from its core insurance business segment and then reinvests the profits. It’s hard to go wrong with Berkshire Hathaway
stock, which is why it’s a financial stock that investors can bank on for years to come.
Featured Article: What are Institutional Investors?7 Stocks That Could Benefit From a Capital Gains Tax Hike
One thing every investor needs to learn is the effect of capital gains on their investments. Every time an investor sells a stock that has appreciated in value, that capital gain is subject to being taxed. Stocks that are held for less than a year pay a short-term capital gains tax rate. Stocks that are held for over a year pay a long-term capital gains tax rate.
In general, a capital gains tax hike is a bearish indicator for stocks. However, there are a couple of strategies that can help investors avoid some of the tax hit. One strategy is to keep your investments in an individual retirement account (IRA) or 401(k). However many higher-income earners want to have more access to the funds in their brokerage accounts.
A sound strategy for these investors involves buying dividend stocks. Dividend income is also taxed (unless it is reinvested), but typically when the capital gains tax rate is raised, the dividend income rate stays the same. This makes dividend stocks more attractive.
Investing in dividend stocks is never a bad idea, but at times when the capital gains tax rate is favorable, growth stocks provide a better reward for investor capital. But when long-term capital gains tax rates go up, those gains can get expensive.
In this special presentation, we’ll give you seven stocks that have a nice dividend yield and a strong story to go along with them.
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