The biggest winners over the last week have offered abundant yields as well as high returns.
It’s been an exciting time to be in the markets over the last week or so. After 3 months of sideways angst, the markets have sprung into action as investors have been jolted by the reality of a having new sheriff in town next year. The one party sweep in the elections brings fiscal and regulatory change that is being widely celebrated as many stocks have catapulted to impressive gains.
Not all groups have participated equally however as high yielding and more defensive Consumer Staples and Utility stocks have suffered the most. Instead, investors have embraced Industrial and Material stocks with an eye toward fresh spending on infrastructure projects. Defense stocks also jumped as increased spending there has been hinted at.
The biggest winners of course have been in the Financial sector (up 11%) and the reasons are many. To start, we have a Federal Reserve that is almost certain to raise rates next month. Higher rates are a positive for banks and insurance companies as increased rates improve profit margins on both fixed income investing as well as corporate lending. The next area of Finance to benefit are the Brokerage stocks as the newly robust market will bring more trading back to the equity markets. Whether retail or institutional, these increased trading volumes will bring profits. Asset Management stocks have also seen huge gains as renewed interest in a formerly lackluster market is making these companies interesting again.
In addition to having charts that show clear-cut uptrends, stocks in these groups offer dividends. And in some cases, these dividends are healthy. Take Arlington Asset Inv Corp. (AI). This Smaller Cap investor in Mortgage Backed securities is up 10% since the election and the stock also boasts a 15.7% yield. Larger Cap Waddell & Reed (WDR) is up over 12% as it tries to reverse a multiyear downtrend. And while the stock still has work to do, the 9.4% yield may give investors patience. A more attractive alternative is New York based Apollo Global Mgmt. (APO) which is breaking out of a 4 month base after posting a 6.5% gain and offering a 6.5% dividend. (see below)
The Industrial Sector’s Aerospace & Defense stocks offer more modest yields but most of the names in this group average around 2%. The same can be said for other infrastructure related stocks such as those in the Heavy Machinery area.
The fact that the 3 best performing Sectors also pay dividends is quite a bonus for investors. As always, you’ll want to seek out the leadership names in these groups as not only will you get yield, you’ll be sure and outpace the markets in total returns as well.
Mary Ellen McGonagle
MEM Investment Research
WEEKLY CHART OF ONE OF MANY HIGH YIELDING FINANCIAL STOCKS