By Lawrence C. Strauss
Financial stocks in the S&P 500 index are in the middle of the pack right now.
With a total return this year of about 10%, including dividends, financials trail the broad market's 16% result and lag behind sector leaders such as technology and utilities, both of which have benefited from the artificial-intelligence boom. Through Nov. 11, tech stocks returned 27% on average in 2025, versus 18% for utilities.
The financials, however, can offer relatively attractive valuations, nice yields, and dividends that are safe and growing -- even as some big banks are trading near their 52-week highs.
"There's good relative value there compared with a lot of other places in the market," says Michael Barclay, lead portfolio manager of Columbia Threadneedle's dividend income strategy.
Financials are the largest sector weighting in the $45 billion Columbia Dividend Income fund, which Barclay helps manage.
Aaron Clark, a portfolio manager at GW&K Investment Management who helps run the firm's equity dividend-plus strategy, points out that a big potential worry for banks of any size is credit quality. If it erodes, earnings can be affected along with dividend health.
"Everything we're coming across from the banks and the earnings reports and the delinquencies suggests that credit quality is still quite strong, " Clark says. "I don't see that as a concern."
His top holdings include Morgan Stanley, which yields 2.4% and returned about 36% this year through Nov. 11.
The company, Clark says, has benefited from building its "steady fee-based businesses through their wealth management platforms."
Morgan Stanley has been boosting its payout regularly. In July, it declared a quarterly dividend of $1 a share, up 8%.
Both utilities and financials have been known for their dividend yields. But the latter have the added attraction of sporting cheaper valuations overall.
The Financial Select Sector SPDR exchange-traded fund trades at about 16 times 2026 profit estimates, compared with about 19 times for the corresponding utilities ETF, according to FactSet. The KBW Bank Index, which tracks large banks, was recently fetching 11.8 times next year's estimated earnings.
Clark notes that the utility and financial sectors both include "big, regulated, mature, and slow-growing businesses," adding that financials are an "interesting place to find some yield."
Barclay, meanwhile, says, "There are risks out there, but the big financial institutions are so well capitalized" and in good shape fundamentally.
The Columbia Dividend Income fund's financial holdings include Bank of America, which yields 2.1%, and JPMorgan Chase, 1.9%.
Bank of America in July announced that it would pay a quarterly disbursement of 28 cents, up two cents, or nearly 8%. In September, JPMorgan Chase declared a quarterly dividend of $1.50 a share, a 7% boost from $1.40 -- the latest in a series of regular increases in recent years.
Banks aren't the only place to find yield in the broader financial sector. Barclay points to property-and-casualty insurer Chubb, which yields 1.4%. The company in May declared a quarterly disbursement of 97 cents a share, versus 91 cents previously, for an increase of more than 6%. The stock has returned about 7% in 2025.
The stock has been left behind this year, says Barclay, who calls Chubb a "phenomenally well-run company."
He adds that Chubb is disciplined when it comes to assessing risk and how to price its products.
Another insurer to consider for yield-seeking investors is Old Republic International. Its stock yields 2.8%, and the stock has returned about 26% year to date. Its lines of business include title insurance and property and casualty.
The Chicago-based company paid a special dividend of $2 a share in January of this year. On top of that, it pays a quarterly dividend of 29 cents a share, having declared an increase earlier this year from 26.5 cents a share. That's an increase of 9%.
With a recent market cap of about $22.5 billion, Citizens Financial Group isn't a behemoth. The regional bank's stock, however, yields an attractive 3.5%. The stock has returned about 24% this year.
It's a top 10 holding for Clark in the equity dividend-plus strategy. He points to the bank's efforts to build up its wealth management business as a catalyst for growth.
"They're getting some good traction on the new business front there," says Clark. "So, it's an expansion story with a good yield, as well."
Last month, the company announced that it would hike its quarterly dividend to 46 cents a share, up nearly 10% from 42 cents. That marked its first dividend increase since 2022.
"We want to get back on a regular cycle of dividend increases," said CEO Bruce Van Saun during Citizens Financial's third-quarter earnings call with analysts last month. Van Saun added that he didn't "at this point see meaningful uses of capital on bolt-on" acquisitions, putting more emphasis on dividend increases and share repurchases.
The bank, based in Providence, R.I., has various commercial and consumer businesses, including roughly 1,000 branches in 14 states and Washington, D.C.
Barclay remains positive on the outlook for financial stocks. He points out that the yield curve has steepened, a positive development for banks because they make short-term borrowings and lend over longer maturities.
The Federal Reserve, which last month slashed short-term interest rates by another 0.25%, is expected to continue to give serious consideration to more cuts.
"If the Fed continues to ease and the short end comes down even more, you still have a steep yield curve, which has traditionally been a good environment for financial service stocks, in particular the banks," says Barclay.
That, in turn, should be supportive of dividends in the sector and help spur more increases.
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(END) Dow Jones Newswires
November 12, 2025 13:12 ET (18:12 GMT)
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