As investors, it’s our goal to outperform the overall market each and every year. There are many ways to go about trying to do this, but one of the best and least-risky ways I have found is to buy stocks that meet these criteria:
- The company is a leader in its industry
- Its stock is undervalued on a forward price-to-earnings basis
- It has a high dividend yield or it pays a dividend and has an active streak of annual increases
I’ve scoured the financial sector and selected three stocks that meet these criteria perfectly, so let’s take a closer look at each to determine which would best the best fit for your portfolio.
1. Toronto-Dominion Bank
Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is the second-largest bank in Canada with approximately $1.17 trillion in total assets.
At today’s levels, its stock trades at just 11.6 fiscal 2016’s estimated earnings per share of $4.78 and only 11 times fiscal 2017’s estimated earnings per share of $5.07, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 13 and its sub-industry average multiple of 13.2. It also trades at a mere 1.55 times its book value per share of $35.99, which is very inexpensive compared with its five-year average market-to-book value of 1.78.
In addition, Toronto-Dominion pays a quarterly dividend of $0.55 per share, or $2.20 per share annually, which gives its stock a yield of about 3.95%. Investors must also note that it has raised its annual dividend payment for five consecutive years, and its 7.8% hike in February has it on pace for 2016 to mark the sixth consecutive year with an increase.
2. Manulife Financial Corp.
Manulife Financial Corp. (TSX:MFC)(NYSE:MFC) is one of the world’s leading providers of financial products and services, including life and health insurance, annuities, mutual funds, and retirement solutions. As of December 31, 2015, it had approximately $935.2 billion in assets under management and administration.
At today’s levels, its stock trades at just 10 times fiscal 2016’s estimated earnings per share of $1.91 and only 8.9 times fiscal 2017’s estimated earnings per share of $2.13, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 93.6 and its sub-industry average multiple of 15.9. It also trades at a mere 0.97 times its book value per share of $19.51, which is very inexpensive compared with its five-year average market-to-book value of 1.20.
In addition, Manulife pays a quarterly dividend of $0.185 per share, or $0.74 per share annually, which gives its stock a yield of about 3.9%. Investors must also note that it has raised its annual dividend payment for two consecutive years, and its recent increases, including its 8.8% hike in February, has it on pace for 2016 to mark the third consecutive year with an increase.
3. Equitable Group Inc.
Equitable Group Inc. (TSX:EQB) is ninth-largest independent Schedule I bank in Canada with approximately $17.6 billion in assets under management.
At today’s levels, its stock trades at just 6.5 times fiscal 2016’s estimated earnings per share of $7.90 and only six times fiscal 2017’s estimated earnings per share of $8.51, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 7.9 and its sub-industry average multiple of 50.8. It also trades at a mere 1.10 times its book value per share of $46.57, which is very inexpensive compared with its five-year average market-to-book value of 1.29.
In addition, Equitable Group pays a quarterly dividend of $0.20 per share, or $0.80 per share annually, which gives its stock a yield of about 1.6%. Investors must also note that it has raised its annual dividend payment for five consecutive years, and its recent increases, including its 5.3% hike in November 2015, has it on pace for 2016 to mark the sixth consecutive year with an increase.
Which of these financial stocks should you buy today?
Toronto-Dominion Bank, Manulife Financial, and Equitable Group are undervalued and have great dividends, making them ideal long-term investment options. All Foolish investors should take a closer look at each and strongly consider buying one of them today.
