High-Paying Dividend Finance Stocks Favored by Smart Money

Investors in financial stocks are on the edge of their seats, as Janet Yellen, the Federal Reserve chairwoman, has recently hinted that there’s a greater probability of an interest rate increase at the FOMC’s next meeting. Higher interest rates mean higher income for banks, as they can charge a higher rate on the loans they give out, whgile insurers get higher returns from their investment portfolios.

As investors’ confidence in financial stocks picks up steam, let’s have a look at the most popular financial stocks among the hedge funds in our database which also make large dividend payments to shareholders.

While there are many metrics that investors can assess in the investment process, hedge fund sentiment is something that is often overlooked. However, hedge funds and other institutional investors allocate significant resources while making their bets and their long-term focus makes them the perfect investors to emulate. This is supported by our research, which determined that following the small-cap stocks that hedge funds are collectively bullish on can help a smaller investor beat the S&P 500 by around 95 basis points per month (see more details here).

#5 Invesco Ltd. (NYSE:IVZ)

– Annual Dividend: $1.12

– Dividend Yield: 3.56%

Hedge fund interest in Invesco Ltd. (NYSE:IVZ) picked up during the second quarter, as 34 of the funds followed by Insider Monkey reported a stake in the company as of June 30, up from 30 a quarter earlier. Billionaire Ken Griffin is very bullish on this stock, as his fund Citadel Investment Group, boosted its Invesco stake by 822% to 2.34 million shares worth $59.7 million at the end of June. Richard S. Pzena’s Pzena Investment Management is also betting big on Invesco, holding 2.89 million shares valued at $73.8 million. Invesco Ltd. (NYSE:IVZ) has a market cap of $13 billion and is currently trading at a trailing price-to-earnings (P/E) ratio of 16, which is pretty much in-line with the industry average. A recent trend shows investors pulling money out of actively-managed funds and putting it into passive funds like ETF’s instead, and Invesco is well placed to benefit from that. The company has 17% of its assets invested in passive funds and has reported $4.5 billion of inflows into these funds during the second quarter, compared to zero net inflows into actively-managed funds.

#4 Prudential Financial Inc (NYSE:PRU)

– Annual Dividend: $2.80

– Dividend Yield: 3.52%

Hedge fund sentiment towards Prudential Financial Inc (NYSE:PRU) improved slightly during the second quarter, as the number of hedge funds that we track with long positions in it rose to 35 at the end of June from 33 registered three months earlier. Peter Rathjens, Bruce Clarke and John Campbell, the managers of Arrowstreet Capital, decided to step up their interest in the company during the quarter, having boosted their position by 53% to 2.23 million shares valued at $159 million. Prudential Financial Inc (NYSE:PRU)’s stock took a hit in January and early-February before rebounding in March and April. Shares ended Friday’s trading session at $79.49, just below the break-even point for the year. For the second quarter, Prudential posted adjusted earnings of $1.84 per share on the back of $11.81 billion in revenue, while investors were looking for $11.75 billion in revenue and $2.50 in earnings per share. Prudential also said that it would increase its share buyback program by $500 million to a total of $1.25 billion.

We’ll check out the three high-dividend finance stocks most favored by smart money on the next page.

#3 Metlife Inc (NYSE:MET)

– Annual Dividend: $1.60

– Dividend Yield: 3.70%

Although the popularity of Metlife Inc (NYSE:MET) cooled down a bit during the second quarter, it is still a popular dividend financial stock. At the end of June, Metlife could be found in the portfolios of 45 of the funds tracked by Insider Monkey, down from 50 at the end of March. Among these funds, Ric Dillon‘s Diamond Hill Capital held the largest position on June 30, at 7.35 million shares valued at $293 million. Continuous low interest rates are a big burden for insurance companies, as they rely heavily on income from their investment portfolios. What makes Metlife Inc (NYSE:MET) attractive is that it has small capital expenditures and a solid free cash flow stream. In 2015, free cash flow amounted to $14.1 billion, while its dividend expenditures totaled just $1.8 billion. The company has been actively expanding overseas and is well positioned to benefit from growth in emerging markets.

#2 NorthStar Asset Management Group Inc (NYSE:NSAM)

– Annual Dividend: $0.40

– Dividend Yield: 3.16%

At the end of the second quarter, roughly 43% of NorthStar Asset Management Group Inc (NYSE:NSAM)’s common stock was held by 48 of the hedge funds in our database, the latter figure being down from 53 registered a quarter prior. David Abrams is very optimistic about the prospects of this company, having boosted his fund’s stake in it by 38% during the quarter to 10.9 million shares worth $111 million. For its most recent quarter, NorthStar Asset Management Group Inc (NYSE:NSAM) posted a profit of $0.28 per share on the back of $97.1 million in revenue, in-line with analysts’ projections. The stock finished Friday’s trading session up by 5.7% year-to-date. In early-June, the company announced a merger with Colony Capital Inc (NYSE:CLNY) and Northstar Realty Finance Corp (NYSE:NRF) to form a real estate investment trust (REIT) with $58 billion worth of assets under management. The new entity is expected to generate about $115 million in annual cost savings.

#1 Wells Fargo & Co (NYSE:WFC)

– Annual Dividend: $1.52

– Dividend Yield: 3.01%

The San Francisco-based banking giant is the number one dividend finance stock, with its yield barely cresting the 3% threshold that we set for this list, at 3.01%. 88 of the funds we follow disclosed holding a long position in the stock at the end of June, down from 90 at the end of March. Together, these funds held approximately 12% of the company’s outstanding stock. The most famous supporter of Wells Fargo & Co (NYSE:WFC), Warren Buffett, is still holding on to this investment and is looking for ways to increase it. According to its latest 13F filing, Berkshire Hathaway held 479.7 million Wells Fargo shares at the end of June, worth $22.7 billion. Since the stake amounts to roughly 10% of the company’s common stock, Berkshire is required to request approval from the Federal Reserve to further increase its holding. In the beginning of July, the fund said that it had indeed made just such a formal request, stating that it does not plan to pursue any merger deals or interfere with the current strategy or corporate structure. “We value Berkshire Hathaway as a long-term shareholder and customer, and we appreciate the confidence that Berkshire’s executive team has shown in Wells Fargo,” Ancel Martinez, a spokesman for Wells Fargo wrote in an email, as reported by Reuters.

Disclosure: None