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Toronto Dominion Bank(TD-N)

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2 High-Yield Financial Stocks to Earn Passive Income for Years

Motley Fool - Wed Sep 28, 4:25AM CDT

It can be hard to find good yields when everything is going well -- which makes now, amid recession fears and a bear market, a great time for dividend investors to go shopping. The financial sector is a particularly attractive space if you can think long-term since some great companies have traded lower and now offer generous dividend yields. For those willing to think outside the box, Toronto-Dominion Bank(NYSE: TD) and T. Rowe Price(NASDAQ: TROW) are two stocks worth investigating further.

A hand planting money in the ground to show long term investing growth.

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1. Toronto-Dominion Bank: No slowing down

Toronto-Dominion Bank, more commonly referred to by its initials TD, is one of the largest banks in North America. It has a solid position in its insulated and conservative Canadian home market, and a growing business in the United States. The company estimates it is the sixth-largest bank in North America overall.

That said, thanks to its Canadian roots, it tends to be conservatively positioned at all times. Right now, TD Bank's Tier 1 Capital Ratio is a strong 14.9%, the second best in North America. That means that there's only one bank better positioned to handle economic headwinds as the fears of a recession spreads. But don't think that TD is hunkering down, running for cover, or circling the wagons. Far from it -- it is still looking to expand its business.

In February, TD Bank announced plans to acquire First Horizon(NYSE: FHN) for $13.4 billion. It followed that up with the August announcement that it would buy investment firm Cowen Group(NASDAQ: COWN) for $1.3 billion. Both help move the needle: One increases TD Bank's size in traditional banking in the United States, and the other expands its investment business. And thanks to investors worried about the economy and the stock market, the stock of this still-growing bank is trading down around 20% so far in 2022, and the dividend yield is up to a generous 4.4%. TD Bank, meanwhile, has paid a dividend for an incredible 164 consecutive years, which suggests income investors can rely on the quarterly payment showing up for years to come.

2. T. Rowe Price: Okay, this hurts

T. Rowe Price's stock is trading down by roughly 45% so far in 2022. There's no question that's a disturbing drop, but it isn't all that surprising given the negative sentiment on Wall Street today. That's because T. Rowe Price is an asset manager and it gets paid fees based on the assets it has under management. The bear market has reduced the value of the assets the company manages and investors have been pulling money out of the market because they are afraid of further declines. The numbers are shocking, with the second quarter alone seeing T. Rowe Price assets under management drop just over $242 billion.

One thing to keep in mind, however, is that T. Rowe has increased its dividend annually for over three decades, making it a Dividend Aristocrat. The past 30 years have seen a number of material bear markets, including during the bust in 2000 and the Great Recession in 2008-09. And T. Rowe Price kept increasing its dividend right through all of the market's ups and downs. In other words, there's no particular reason to think the current bear market will be that much different.

Meanwhile, the second quarter's $1.79 per share in adjusted earnings soundly covered the $1.20 per-share quarterly dividend. The payout ratio on that comes to a solid 66% or so. That leaves ample room for more adversity before the dividend would be at risk. Given the long history of dividend increases, meanwhile, it seems more likely that dividend increases, even if they are just token raises, are likely. The dividend yield today is a very attractive 4.4%.

When others are fearful

There's no way to know when a bear market will stop falling and start to shift higher again, which makes buying during downturns very hard to do. However, if you can stomach taking a contrarian approach, Toronto-Dominion Bank and T. Rowe Price are two financial stocks that look like they are worth closer looks today for high-yield investors seeking reliable long-term income streams.

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Reuben Gregg Brewer has positions in The Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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