Financial stocks aren’t usually very exciting, but that doesn’t mean they can’t be highly rewarding. And if you are looking to become a millionaire, you should have some exposure to them in your portfolio. Here are three options — W.P. Carey(NYSE: WPC), Toronto-Dominion Bank(NYSE: TD), and Visa(NYSE: V) — that cover a lot of investment ground and pay you well to own them thanks to their dividends.
There’s a problem with W.P. Carey that may keep a lot of investors away: a dividend cut. That’s the cynical view of a complex situation.
A more appropriate take, perhaps, is that management hit the reset button so this real estate investment trust (REIT) could work from a stronger foundation. Essentially, it ripped the bandage off and exited the troubled office sector in one quick move instead of letting the exposure to this property segment slowly dwindle to nothing. But with office space accounting for 16% of rents prior to the divestiture, that couldn’t happen without a dividend reset.
You know it was a reset because the dividend was immediately back to the cadence of quarterly increases that existed before the cut. Meanwhile, W.P. Carey’s office exit has left it with a record level of liquidity to invest in new properties.
Or, to put it another way, this REIT is ready to start growing again. And you can collect a fat 5.9% yield backed by a growing dividend if you buy it today.
Toronto-Dominion Bank, more commonly known as TD Bank, has admitted that it allowed its U.S. bank system to be used by money launderers. It has upgraded its internal controls, paid a roughly $3 billion fine, and now lives under an asset cap in the United States that will require it to reposition its balance sheet in this country.
More notably, all of this means that U.S. growth will be slow to nonexistent for a little while until TD Bank earns back regulators’ trust. That’s not a great outcome, but it is all a part of TD Bank taking responsibility for its mistake.
However, it has the cash to pay the fine (it sold a portion of its stake in Charles Schwab to come up with the money), and the U.S. banking operation is only one part of the company’s business.
It’s also the second largest bank in Canada, and that business is unaffected by the U.S. problems. This is not a life-or-death situation; it is a very low-risk turnaround for a company that has paid a dividend every year for well over 100 years.
And you get to collect a 5.2% yield while you wait for the bank to muddle through this headwind. That will likely be worth it, even for more conservative dividend investors.
High yields are great, but some dividend investors prefer dividend growth stocks. That’s where Visa comes in. Although the yield is a tiny 0.7%, the dividend has grown at an impressive annualized pace of 18% over the past decade.
The dividend has been increased each year for 16 years as well, so management is clearly dedicated to the payout. The company backing it basically shares a duopoly with Mastercard in the payment processing space, a vital and growing part of the global financial ecosystem.
What’s really interesting here, however, is that Visa looks relatively cheap today. That tiny yield happens to be near the high side of the company’s historical yield range. Meanwhile, the company’s price-to-sales and price-to-earnings ratios are below their five-year averages. To be fair, the stock is trading near all-time highs, but if you are a growth and income investor, all other signs point to an attractive entry point.
Some investors try to become millionaires by betting everything on one or two stocks. That can work, but the risk of a total washout is huge. Most investors should focus on building a diversified portfolio filled with good companies. That’s exactly what W.P. Carey, TD Bank, and Visa are.
That said, each will likely appeal to a different type of investor: high yield, turnaround, and growth and income. But if you take the time to learn about them, you’ll probably find that one or more fit well in your portfolio today.
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Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Reuben Gregg Brewer has positions in Toronto-Dominion Bank and W.P. Carey. The Motley Fool has positions in and recommends Mastercard and Visa. The Motley Fool recommends Charles Schwab and recommends the following options: long January 2025 $370 calls on Mastercard, short December 2024 $67.50 calls on Charles Schwab, and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.
