Financial stocks haven't been the most popular with investors since the economic crisis a decade ago. But beyond the poor-performing banks there are a handful of financial firms richly rewarding shareholders with big dividends and plenty of long-term growth potential.
Everyone needs insurance
At the top of this list is insurer Prudential (LSE: PRU), whose share price has risen from a low of 210p in early 2009 to over 1,700p today. Its shareholders currently enjoy a decent 2.8% dividend and, over the long term, I see plenty of potential for further capital appreciation and dividend hikes.
This will be helped by the company's plan to split into two businesses by around 2020. Prudential plc will retain the high-return US retirement business and fast-growing Asian operations while the de-merged M&G Prudential will take the more capital-intensive, lower growth UK and European insurance and asset management business.
This spin-off makes a good deal of sense, but for the time being shareholders are enjoying solid growth from each part of the business. In the first half of 2018, group constant currency operating profit rose 9% year-on-year to £2.4bn, thanks to continued double-digit growth in Asia and net inflows to fund manager M&G.
Looking ahead, I see good reason to expect this type of growth can be consistently repeated for as long as the global economic growth doesn't go into reverse. This is largely down to the group's high exposure to Asian markets where its operated for nearly a century and built up a leading regional insurance business and growing asset management arm.
As this region's wealth grows, more and more people will move into the middle class and require insurance and financial management services, just as has happened in Europe and the Americas. Given this trend it's not surprising that Prudential's operating profits from the region jumped 14% in H1 to £1bn. And I'd expect this level of growth to continue to for a long time to come.
With high exposure to attractive international markets, a fast-rising dividend, and a proven focus on increasing shareholder returns, I view Prudential as a prime candidate for income and growth-focussed retirement portfolios.
Thriving where others struggle
Another non-bank financial with plenty of scope to continue growing revenue, profits and dividends is asset manager Schroders (LSE: SDR). While other fund managers have struggled to attract new money in recent quarters, Schroders has steadily increased the size of its assets under management (AuM), which is the lifeblood of any money manager.
In H1, net inflows of £1.2b and market returns boosted the group's AuM from $447bn to £449.4bn from year-end. More money under management means more fees for Schroders and the group's pre-tax profits increased 8% to £371.1m, with basic earnings per share jumping from 97.8p to 106p year-on-year.
This allowed interim dividends to rise 3% to 35p, leaving plenty of cash for the company to wisely invest in growth opportunities overseas and with new fund categories. In my eyes, this is a wise way to run the business with long-term growth opportunities balanced out with short-term invest rewards in the form of the 3.7% dividend yield.
Asset managers are certainly facing headwinds going forward, but I reckon Schroders is well placed to survive, thrive, and richly reward shareholders for many years to come. That's thanks to its long-term growth outlook, pushing into new areas such as private investments and international expansion.
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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.