If you have an extra $500 to spare right now, invest for your future by considering these financial stocks that can give you perpetual income by buying and holding them forever! In fact, these stocks are likely to increase their dividends over time.
RBC stock: A blue chip financial stock to buy and hold
Every Canadian knows about Royal Bank of Canada (TSX:RY) and many use at least some of its wide range of financial services. Its core businesses include personal and commercial banking contributing 39% of its fiscal 2023 revenue, wealth management (31%), capital markets (20%), and insurance (10%). The bank’s primary business is in Canada (59% of revenue), followed by the United States (25%), and finally supplemented by 16% of international revenue.
The bank has a long history of paying dividends – since 1870. Over the last 10 years, it compounded its dividend at approximately 7.8% per year, which is a solid growth rate for a blue chip stock that you can buy and hold as one of the core holdings in your diversified portfolio.
Now is an alright time to buy the stock, as it is fairly valued. At the recent price of $132 per share, it trades at a price-to-earnings ratio of about 11.7 and offers a dividend yield of 4.2%.
When’s the best time to buy the stock? During economic downturns, bank earnings will be pressured by higher loan loss provisions. So, during the downturns from the global financial crisis and more recently, the COVID-19 pandemic, it was the best time to buy the stock at substantial discounts to what it would be worth under normal economic conditions. Investors needed to be brave souls and have strong hearts as even the blue chip stock fell about 25 to 50% during those times. Of course, the blue chip bank (and its stock) recovered in a timely manner. So, it’s important to have the conviction to hold long term.
BAM and RY Total Return Price data by YCharts
Brookfield Asset Management: A high growth financial stock
Brookfield Asset Management (TSX:BAM) was freshly spun off from Brookfield in December 2022, so it has a short dividend history on its own. However, the alternative global asset manager is prepared to increase its dividend every year. It got started with a dividend hike of almost 18.8% this month.
BAM is a growth stock in the financial sector. Its current dividend yield of 3.6% is not bad either, given its double-digit growth potential. In the last 12 months, the stock delivered total returns of almost 24%. (RBC stock came out with flat returns in the period, which is a good reminder that investors should try to exercise patience and buy on market corrections if possible.)
BAM is growing fast because it has a long and strong history of execution. So far, it has amassed over US$900 billion of assets under management across renewable power and transition, infrastructure, private equity, real estate, and credit. It invests alongside its clients so its interests are aligned with its institutional and retail investors.
Over the next five years, it aims to double the size of its business with the goal to grow its fee-bearing capital to approximately US$1 trillion. Because it is a capital-light business, it’s able to target a high payout ratio of north of 90%. The stock is fairly valued, at the recent price of $56 per share. Interested investors could buy a bit today and then buy more on any market weakness.
