Financial stocks have emerged as a significant corner of the market poised to gain from a second Trump administration. Since President-elect Donald Trump's victory on Nov. 5, bank stocks, both large and small, have witnessed remarkable growth. The assumption is that his return to the White House could lead to reduced regulation for the sector, spurring more lending and merger and acquisition activities. As of Monday, the SPDR S&P Bank ETF (KBE), which tracks a wide range of financial institutions, has rallied by 11.3%. The SPDR S&P Regional Banking ETF (KRE), which focuses more on smaller banks, has surged by 13% during the same period.
Investment Opportunities Amid Market Uncertainty
In this context, CNBC Pro utilized FactSet data to identify financial names that offer investors solid dividends, a steady income stream, and a useful hedge against market uncertainties. To be included in the following table, stocks had to meet specific criteria. They needed to be a member of the Financial Select Sector SPDR Fund (XLF), have a dividend yield of at least 1.3% (higher than that of the S&P 500), exhibit a dividend growth of 10% or more, and have gained at least 1% so far this month.One such name on the list is Morgan Stanley, which has seen a remarkable increase of about 44% this year. The bank currently offers a 2.8% dividend yield and has achieved 10.2% dividend growth in the past year. In October, Morgan Stanley reported better-than-expected results in both top and bottom lines. As stated by Wells Fargo analyst Mike Mayo, "MS beat consensus on the strongest capital markets of the big five, good wealth results, and investment management inflows (even with ongoing equity weakness). Results likely provide an upward bias to consensus estimates." However, it's important to note that Mayo reiterated his underweight rating on the stock. Most analysts covering Morgan Stanley have a neutral stance on the stock, with the average price target indicating a potential downside of about 10%.Another notable name is Regions Financial, which has gained approximately 36% in 2024. Regions' dividend yield stands at 3.8%, and the bank has witnessed a 18.9% dividend growth in the past year. In late October, a group of investment banks upgraded their ratings on Regions, citing a low valuation as a catalyst. Deutsche Bank was among them. As per Deutsche analyst Matt O'Connor, "More recently, shares have tracked both the broader bank group and regional peers. From here, shares should benefit from relatively low expectations, less risk of regulatory-related earnings hits, and a low valuation (on earnings) vs. peers." According to LSEG, half of the analysts covering the stock consider it a buy or strong buy. However, consensus price targets suggest a slight decline of just under 1% for Regions Financial.Bank of New York Mellon has also performed exceptionally well, gaining 50% this year. The stock currently has a 2.4% dividend yield and has shown a 11.3% dividend growth in the past year. The majority of analysts have a bullish sentiment towards the stock, and according to LSEG, the average price target indicates that the stock could rise by another 4% from its current level. After investor meetings with Bank of New York Mellon CEO Robin Vince, Deutsche Bank upgraded the shares to a buy rating from hold in late September. As stated by analyst Brian Bedell, "Overall, following the meetings, we came away more encouraged about BNY's strategy and the firm's ability to generate a more durable earnings growth path via: 1) disciplined expense control and a long runway of structural cost reduction, 2) stronger organic revenue growth potential over the long term, and 3) a solid capital return policy."In addition to these, other financial stocks providing solid dividends include investment bank Goldman Sachs and credit card provider Discover Financial Services. These stocks offer investors a diverse range of options in the financial sector, with the potential for both growth and stability.