Worried about another interest rate hike that might affect your portfolio? If so, you’re not alone. The most recent Fed minutes stated that support to continue raising rates - which is affecting the broad market. As we had seen in 2022 and February 2023, interest rate hikes have a significant implication for the stock market. Higher interest rates typically lead to more expensive borrowing and slow down economic growth.
So what does an investor looking for opportunities do? Consider stocks poised to grow thanks to higher interest rates.
In this article, we will look at 3 financial stocks that long-term investors should have on their watchlists.
American Family Life Insurance Inc. (AFL)
American Family Life Assurance Company, Inc., abbreviated as AFLAC, Inc., is an American insurance company providing financial services to 50 million people worldwide. It is also the largest supplemental insurance provider in the United States. The company was founded in 1955 by three brothers, John, Paul, and William Amos. Currently, it is headquartered in Columbus, Georgia, U.S.
With 12,000+ active employees, AFL operates in Japan and the United States. Currently, the company offers different kinds of insurance, such as:
- Accident
- Cancer
- Dental
- Supplemental Dental
- Vision
- Supplemental Vision
- Pet
- Critical Illness
- Intensive Medical Care
- Life
- Short-Term Disability
- Specified Health Event
- Hospital Indemnity
Some of these insurance options are offered as both group and individual products. In addition, the company provides human resources services for the Health Insurance Portability and Accountability Act (HIPAA) and the Consolidated Omnibus Budget Reconciliation Act (COBRA).
AFL's dividend yield of 2.46% is based on its last price of $68.15. Its next expected dividend announcement will be by the end of April. AFL has steadily increased its dividends for 40 years and is part of the dividend aristocrats.
Analysts have issued AFL a "Hold" rating based on 1 Strong buy, 2 Moderate Buys, and 7 Holds. The mean target is $71.44, and the high target of $80.00 (an upside of 17%).
How has AFL performed in a high-interest rate environment?
When the global market tumbled due to the pandemic and its effect sent shockwaves across the globe, AFL shrunk and lost more than half value from its high in June 2019. As restrictions and policy changed, AFL gradually recovered and broke out from its June 2019 low.
Chubb Limited (CB)
Chubb Limited is an insurance company, founded in 1985. It is the largest P&C insurance provider in the world and the top provider of commercial lines insurance in the United States. The company is also the top crop insurer in the U.S. Chubb employs over 34,000 employees and is headquartered in Zürich, Switzerland. It also has regional headquarters in New York, London, and Paris.
CB operates in more than 54 counties and territories. The company’s products are mainly divided into three categories:
The Individual and Family category provides home, auto valuables, boats and yachts, cyber, travel, and natural calamity insurance to individual customers and families.
The Business category offers workers' compensation, professional liability, management liability, accident and health insurance, and workplace benefits to various organizations.
The Life and Health Protection category provides supplemental insurance, employer-provided benefits, and personal accident and health insurance.
CB has a dividend yield of 1.57% based on its last trading price of $211.02. CB recently announced its dividend to be paid on April 10, 2023, for $0.83 per share. CB is expected to announce its next dividend payment in the 2nd week of August based on its past schedule. The company has also steadily increased its dividends for 30 years and is part of the dividend aristocrats.
Analysts have issued CB a "Moderate Buy" rating based on 6 Strong buys, 1 Moderate Buy, 4 Holds, and 1 Moderate Sell. The mean target is $244.36, and a high target of $270.00 (an upside of 27.95%).
How has CB performed in a high-interest rate environment?
Once the financial markets felt the effects of the global pandemic, investors were left with rising inflation, rising interest rates, and supply chain issues, CB has recovered from its March 2020 low and more than doubled from there. One could say Chubb Limited has performed well during these hard times for investors.
Brown & Brown (BRO)
Brown & Brown, Inc. is a diversified insurance business offering services to a diverse clientele of businesses, institutions, professions, trade groups, governments, and quasi-governments. It was founded in 1939, and currently, the company is the fifth largest independent insurance brokerage in the United States. It is headquartered in Daytona Beach, Florida, U.S.
BRO currently operates in more than 450 locations and has 12,023 employees. Its operations are divided into four segments:
The Retail segment offers a wide variety of insurance products and services to public and para-public enterprises, as well as to individual consumers.
The National Programs segment offers liability solutions to specific professionals through a nationwide group of independent representatives.
The Wholesale Brokerage segment, typically via independent representatives and brokers, promotes and distributes surfeit commercial and individual lines insurance.
The Services segment provides claims advocacy, claims adjustment, and claims processing for workers' compensation, property, and vehicle claims.
The company has a dividend yield of 0.82% based on its last trading price of $56.07, which is a bit low compared with the first 2 companies. Investors must also consider that BRO has been gradually increasing its dividend payments for 29 years, and dividends are one of the ways investors can obtain a reliable, steady cash flow. BRO recently paid its dividend of $0.115 per share and is expected to announce its next dividend payment in the last week of April based on its historical disclosure schedules.
Analysts have issued BRO a "Moderate Buy" rating with 2 Strong buys, 1 Moderate Buy, and 6 Holds. The mean target is $66.88, and the high target of $76.00 (an upside of 35.57%).
How has BRO performed in a high-interest rate environment?
Brown & Brown, like practically every other stock during the early days of the pandemic, lost almost half of its value. Dropping from a high of $48.69 to $30.70 in almost 5 weeks. However, recovery has been steady, and the company has broken out from that high and more than doubled (it went as high as $74.00) from the $30.70 low. The prices are starting to establish support and may be poised for continuation with the signal of maintaining high-interest rates from the Fed.
Final Thoughts
Financial stocks can add value to a long-term investor's portfolio with interest rates expected to rise. However, investors must always remember that in any investment, it is important to do their due diligence before making any decision. No one can predict how markets behave, but we can always respond to the market's opportunities while being equipped with actionable analysis.
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On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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