The 3 Best Dividends From the Financial Sector

If you’re looking for strong dividends, you can’t skip the financials. These three are likely your best bets.

| More on:
The Motley Fool

This may be hard to believe, but if you’re looking for strong dividend-paying stocks, you can’t skip over the financial sector. At least this is the case in Canada, where our banks are among the safest and most profitable in the world.

So with that in mind, below we take a look at the top three options.

1. Bank of Nova Scotia

Among the big five Canadian banks, perhaps no other is better positioned to grow than Bank of Nova Scotia (TSX: BNS)(NYSE: BNS).

Canada’s third-largest bank is also its most international; about half of its net income comes from outside Canada’s borders. Above all else, the bank is focused on emerging markets, specifically Mexico, Colombia, Peru, and Chile.

All of these countries not only have healthy, growing economies, but also have underbanked populations. So as more people need loans and bank accounts from these countries, the company will have plenty of tailwinds.

Best of all, the shares are not overpriced, trading at 13.6 times earnings. As a result, the dividend yields a healthy 3.5%. That’s not bad for a company with such strong prospects.

2. Royal Bank of Canada

Royal Bank of Canada (TSX: RY)(NYSE: RY) is certainly firing on all cylinders. For one, Canada’s largest bank — and largest company overall — is maintaining a strong grip on the domestic market, with a top two position in every Canadian banking product.

The news keeps getting better. It is heavily focused on its wealth management and capital markets businesses, which together accounted for 32% of earnings last year. These are areas where the world’s largest banks have been in retreat since the financial crisis. That has allowed the bank to pick up market share, whether through organic growth in capital markets or cheap acquisitions in wealth management.

Despite the bank’s success, it still only trades at 13.4 times earnings, and has a 3.6% dividend yield. So you don’t have to overpay for one of Canada’s top companies.

3. Manulife

At first glance, you would think that Manulife Financial (TSX: MFC)(NYSE: MFC) doesn’t belong on this list. After all, the life insurer suffered terribly during the financial crisis, struggling to raise enough capital. Also, its dividend yields only 2.4%.

These two facts are not unrelated. Because Manulife struggled so much during the crisis, it has been reluctant to raise its dividend since recovering. As a result, the company pays out less than a third of its earnings to shareholders. Meanwhile, Manulife has built up a rock-solid capital base — the company is now easily better-capitalized than its peers.

Manulife’s shares are cheaper too, at 12.5 times earnings. If you’re willing to accept a lower yield for now, you would be setting yourself up for plenty of dividend growth down the road, and you would get all that for a great price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Investing

Dividend Stocks

2 of the Best Dividend Stocks to Buy Before They Start to Recover

These dividend stocks offer superior deals for those seeking long-term passive income, but these prices certainly won't last forever.

Read more »

Dividend Stocks

Algonquin Insiders Are Loading Up on AQN Stock – Should You Follow?

Algonquin Power and Utilities (TSX:AQN) insiders poured millions into AQN stock last week. Share valuation multiples seem compelling.

Read more »

Young adult woman walking up the stairs with sun sport background
Stocks for Beginners

New Investor? Buy These 2 Growth Stocks

These two growth stocks are perfect if you want superior growth in the near future but a long-term hold that…

Read more »

Man data analyze

A Passive-Income Triple Play: 3 Top TSX Stocks to Buy Together

These two top Canadian dividend stocks provide long-term investors with much-needed stability and passive income right now.

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

TFSA: 2 Stocks To Earn Passive Income Even in a Recession

Investors are coping with 2023 recession fears differently. Some are investing in stocks that can create long-term passive income.

Read more »


2 Top Canadian Retail Stocks That Could Get a Holiday Boost

Here's why Canadian Tire (TSX:CTC.A) and Canada Goose (TSX:GOOS) are two top Canadian retail stocks to buy right now.

Read more »

Cogs turning against each other
Dividend Stocks

3 Stocks You Can Confidently Own in an Upside-Down Market

Although many stocks have lost major value this year, here are three high-quality companies you can confidently own in this…

Read more »

Increasing yield
Dividend Stocks

2 Ultra-High-Yield Dividend Stocks on Sale Today

Besides their ultra-high yields, here are more factors that make these two of the best Canadian dividend stocks worth buying…

Read more »