Under siege for most of the past several years, the financial
services sector has finally shown legitimate signs of life in
2012. The second-largest sector weight in the S&P 500, though
still controversial, has been a stellar year-to-date performer.
Just look at the Financial Services Select SPDR (NYSE:
That ETF is home to a plethora of well-known (and infamous)
banking names including J.P. Morgan Chase (NYSE:
), Wells Fargo (NYSEL WFC) and Bank of America (NYSE:
). XLF has managed to gain 19 percent this year and the gains
would likely be higher if not for an adverse reaction to the
presidential election by banking names.
With healthy gains already notched by the largest financial
services names, investors may be left wondering if the sector
offers any remaining near-term upside. That question cannot be
answered definitively, but what is clear is that some small- and
micro-cap financial services do offer growth potential along with
appealing dividend yields.
Medallion Financial (Nasdaq:
) Medallion Financial is one of the more well-known stocks in the
micro-cap universe if for no other reason than that the company
has been around for almost two decades and because engages in
originating, acquiring, and servicing loans that finance taxicab
medallions. Basically, if you want be a cab driver in New York
and need a loan to purchase the medallion, Medallion Financial
helps you with that, so this is not your run-of-the-mill
financial services company.
This may not be the type of company investors usually think of
as being a strong dividend payer, but the reality is Medallion
Financial has increased its dividend by a third since late 2010
and the payout has quadrupled since 2003. Medallion now yields
about 7.4 percent, but beware of this name if it drops below its
200-day moving average. The shares reside just 5.5 percent above
that important line.
CapLease Inc. (NYSE:
) CapLease is a real estate investment trust (REIT), so it's not
surprising this company has a juicy 5.8 percent yield. By law,
REITs are required to distribute at least 90 percent of their
taxable income each year to shareholders as dividends. The
company did cut its payout during the financial crisis, but it
has increased the dividend in the past year.
Approximately 90 percent of CapLease's assets are owned
single-tenant properties and while the company operates in just
24 states, the company does count the U.S. government, TJMax
) and Tiffany (NYSE:
) among its tenants.
Last year, CapLease sold $240 Million of debt investments and
reduced its debt portfolio 74 percent. Portfolio leverage was
reduced to 66 percent. The risk investors must acknowledge with
CapLease or any other REIT is that Congress could move to change
the tax treatment of certain dividend asset classes, such as MLPs
or REITs, in an effort to bolster tax revenue.
A change to the corporate structure of REIT would likely send
investors scurrying out of an asset class that has been a favored
destination in this low interest rate environment. To be sure,
there is no guarantee Congress will force REITs into a
traditional corporate tax structure. It is merely an issue
investors to keep on their radar screens.
Artio Global Investors (NYSE:
) Asset manager Artio is easily the most controversial name on
this list. Maybe it is because the company had $16.7 billion in
assets under management at the end of October compared with $17.7
billion at the end of September. Or maybe it is because the stock
trades for less than $2. Or maybe investors have not warmed to
management changes that took place earlier this year.
Artio started paying its dividend in 2010 and currently yields
4.4 percent, but the company's payout ratio is just 18%,
indicating there is room for dividend growth and that the firm is
not being overwhelmed by its dividend. Consider this stock a deep
value play because the shares trade for less than 0.8 times book
value and less than eight times cash flow.
**The screening methodology used for this included the
following parameters: Only stocks that currently reside in the
micro-cap universe, yields above 3%, financial services stocks
excluding closed-end funds and average daily volume of at least
(c) 2012 Benzinga.com. Benzinga does not provide investment
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