2 high-yielding dividend stocks that are also fighting inflation
As longer-term government bond yields are rising and investors’ minds of higher inflation are rising, stock prices are coming under pressure in several popular sectors. When bond yields rise, it can take some wind away from growth and technology stocks as their future cash flows depreciate. In addition, higher bond yields offer investors the opportunity to earn more with safer investments. That raises expectations for stocks, for which the bar has already been set pretty high.
In contrast, companies in some sectors are benefiting from rising bond yields. Bank stocks tend to rise higher as 10-year government bond yields rise, as the interest rates on many of their loans are pegged to that benchmark (and to other longer-term bond yields that tend to move in sync with it).
These two bank stocks should benefit greatly from rising bond yields and should also handle some inflation well. And as a bonus, there are now dividend yields that are well above average S&P 500 Shares.
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The fortune of nearly $ 88 billion Comerica (NYSE: CMA) likely cheers when longer term returns rise as this trend is incredibly beneficial to bottom line. The Dallas-based bank said in its second quarter filing that a 1% increase in the federal funds rate – what the Federal Reserve charges banks for overnight loans – would increase its net interest income by 10% year over year next Year. Now, the Fed hasn’t raised the Fed Funds rate – yet – since it cut it to essentially zero at the start of the pandemic. However, a bank that is so sensitive to short-term rates will also benefit from an increase in longer-term rates.
That’s because Comerica has a really strong deposit base and nearly $ 39 billion of its deposits – more than half – are non-interest-bearing, which means the bank doesn’t charge any interest. Ideally, these deposits are stickier – account holders should largely be expected to stick with Comerica even as interest rates rise and the deposit war intensifies. We also know that the vast majority of the bank’s loan book, which contains many commercial loans, is tied to floating rates. Hence, his profits on these loans will increase when interest rates rise.
Of course, if banks can curb the amount of interest they pay and raise the interest rate on loans, they’ll make more money. And with a quarterly dividend of $ 0.68 on a share price of $ 80.50 at close of trading on Thursday, Comerica is currently offering a nice dividend yield of 3.3% that investors can get while waiting for profits to soar .
2. Citizens Finance Group
Citizen Finance Group (NYSE: CFG) will also benefit when inflation rises and long-term bond yields rise. In its second quarter filing, the Rhode Island-based bank claimed that if the Federal Reserve were to hike the Fed Funds rate quickly by 1%, it would earn an additional 11.3% of net interest income over the next year. If the Fed Funds rate were to gradually increase 1% – a more likely scenario – the $ 185 billion asset bank would still generate another 5.4% of net interest income.
More than half of Citizens’ loan book is tied up in floating rate loans, and the bank is continuing to cut its cost of deposits. In addition, the planned takeover of 80 HSBC US branches will come in with $ 9 billion in very cheap deposits. And as with Comerica, Citizens’ dividend yield is nearly 3.3% at current stock prices.
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