Traditionally, the financial services industry leaned heavily on high interest rates and inflation for growth. However, as technology advances and the economic landscape shifts, we’re entering a new era. The sector is poised for significant growth in the upcoming years due to easier access to digital services, growing credit demand, and increased consumer spending.

Given this evolving landscape, one could consider investing in fundamentally sound financial stocks, such as The Hanover Insurance Group, Inc. (THG), NI Holdings, Inc. (NODK), and Hawthorn Bancshares, Inc. (HWBK), which can offer both growth and stability to your portfolios.

As the economy grows, so does the demand for financial services, driving profitability across the sector. Financial services are integral to the economy, facilitating transactions and economic growth. Over the next five years, the financial services industry is expected to expand at a CAGR of 13.1%, reaching $271.75 billion by 2029.

Recent signals from the Federal Reserve about potential rate cuts suggest that banks could soon see improved net interest margins. This would enhance the spread between borrowing and lending rates, bolstering capital ratios and overall financial stability.

Additionally, the rapid adoption of technology has revolutionized the industry, streamlining transactions and lending processes for greater efficiency. This digital shift has propelled the digital lending platform market, which is anticipated to hit $34.60 billion by 2028, exhibiting an impressive CAGR of 21.9%.

As a result, companies in this sector are better equipped to manage risk when the economy is on an upswing, and the industry is robust. The long-term potential of this sector is strengthened by factors such as economic growth, fluctuation in interest rates, and advancements in financial technology.

Financial stocks offer investors a blend of growth and stability, balancing potential gains with risk management. With that in mind, let’s examine the fundamental aspects of the featured stocks in detail:

The Hanover Insurance Group, Inc. (THG)

With a market cap of $4.78 billion, THG provides various property and casualty insurance products and services in the United States. The company operates through four segments: Core Commercial; Specialty; Personal Lines; and Other. 

On June 28, buoyed by its strong financial performance, THG paid its shareholders a quarterly dividend of $0.85 per share.

With a record of 16 years of consecutive dividend growth, the company pays an annual dividend of $3.40, which translates to a yield of 2.56% at the current share price. Its four-year average dividend yield is 2.56%. Moreover, its dividend payouts have increased at CAGRs of 6.9% and 7.5% over the past three and five years, respectively.

For the second quarter of 2024 (ended June 30), THG’s total revenue increased 2.1% year-over-year to $1.54 billion, while its earnings from premium grew 4.4% from the year-ago value to $1.47 billion.

The company’s operating income after taxes stood at $68.10 million compared to a loss of $68.30 million in the previous year. Further, its net income amounted to $40.50 million and $1.12 per share, compared to a loss of $69.20 million and $1.94 per share in 2023.

Analysts expect THG’s revenue for the third quarter (ending September 2024) to grow 4.4% year-over-year to $1.67 billion, while its EPS for the same period is expected to increase significantly from the prior year to $2.67.

THG’s revenue has grown at CAGRs of 6.2% and 5.5% over the past three and five years, respectively. Likewise, the company’s total assets have increased at a CAGR of 2.7% over the past three years and 4.1% over the past five years.

The stock has gained 21.1% over the past year to close the last trading session at $132.28. Its 24-month beta of 0.31 indicates lesser volatility than the broader market.

THG’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

THG has an A grade for Momentum and a B for Growth and Stability. It is ranked #9 out of 55 stocks in the A-rated Insurance – Property & Casualty industry. Click here to see the additional ratings for THG (Value, Sentiment, and Quality).

NI Holdings, Inc. (NODK)

NODK, a subsidiary of Nodak Mutual Group, Inc., underwrites a range of property and casualty insurance products in the United States. Their offerings include private passenger auto, non-standard automobile, homeowners, farm owners, crop hail and multi-peril crop, and liability insurance policies.

On July 5, NODK sold its wholly-owned commercial insurance subsidiary, Westminster American Insurance Company, to a private buyer for $10.50 million cash, with final adjustments pending. This strategic divestiture allows the company to streamline operations and focus on its core business growth.

NODK’s total revenues for the second quarter (ended on June 30, 2024) increased 8.3% year-over-year to $87.81 million, while the net investment income stood at $2.52 million, up 31.2% year-over-year.

The company’s net premiums earned for the quarter amounted to $85.17 million, indicating an increase of 8% from the prior year. Moreover, its combined ratio stood at 113.7% compared to 107.1% in the same period last year.

Moreover, NODK’s revenue has grown at CAGRs of 6.1% and 9.2% over the past three and five years, respectively. In addition, its total assets increased at 1.2% CAGR over the past five years.

Over the past nine months, the stock has gained 7.6%, closing the last trading session at $13.65. It has a two-year beta of 0.24.

It’s no surprise that NODK has an overall rating of B, which translates to Buy in our POWR Ratings system. NODK has an A grade for Momentum and a B for Stability and Sentiment. Within the Insurance – Property & Casualty industry, it is ranked #15 out of 55 stocks.

Beyond what is stated above, we’ve also rated NODK for Growth, Value, and Quality. Get all NODK ratings here.

Hawthorn Bancshares, Inc. (HWBK)

HWBK operates as the bank holding company for Hawthorn Bank, offering a wide range of banking services in the United States. It provides various deposit accounts, including checking, savings, money market, IRAs, and certificates of deposit. The company also offers a variety of loans, such as commercial, industrial, real estate, and SBA loans, along with debit and credit card services.

On July 30, the company declared a quarterly dividend of $0.19 per common share, payable on October 1, 2024, to shareholders of record on September 15, 2024. HWBK pays an annual dividend of $0.76, which translates to a yield of 3.55% at the prevailing price levels. Its four-year average dividend yield is 2.75%. The company’s dividend payments have grown at a CAGR of 14.1% over the past three years and a 15.2% CAGR over the past five years.

In the fiscal second quarter that ended on June 30, 2024, HWBK’s total interest income increased 7.4% year-over-year to $23.56 million. The company reported a non-interest income of $3.99 million, indicating a 150.3% growth from the prior year’s quarter.

In addition, its net income stood at $4.63 million, up 81.6% year-over-year, while its EPS grew 83.3% from the year-ago value to $0.66. HWBK’s common equity Tier 1 capital ratio for the quarter increased to 10.02% from 9.92% in the previous year.

Over the past three and five years, HWBK’s net interest income grew at CAGRs of 2.6% and 5.2%, respectively, while its tangible book value grew at 4.6% CAGR over the past five years.

HWBK has gained 20.9% over the past year to close the last trading session at $21.43. It has a 24-month beta of 0.54.

HWBK’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

It also has a B grade for Growth, Value, Momentum, and Stability. Out of 42 stocks in the Midwest Regional Banks industry, HWBK is ranked #2. Click here to see HWBK’s ratings for Sentiment and Quality.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

THG shares were trading at $132.57 per share on Tuesday morning, up $0.29 (+0.22%). Year-to-date, THG has gained 10.65%, versus a 14.03% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

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