While best known for its credit card business, Discover Financial Services (DFS) offers a variety of services, from home-equity and student loans to deposit products, notes Chuck Carlson, dividend expert and editor of DRIP Investor.
The company’s broad reach in the financial-services sector has served the firm well, as the company has posted 27 consecutive quarters of revenue growth and record profits in each of the last two years.
Results should be even better in 2018, paced by a healthier consumer, tax cuts, and higher interest rates. Earnings are expected to reach $7.72 per share this year, up 29% from 2017.
Higher interest rates should be a tailwind, as the company’s net interest margin is expected to rise slightly to 10.3%-10.4% from 10.2% in 2017.
Discover has been returning substantial amounts of cash back to shareholders in the form of dividends and buybacks. The quarterly dividend has increased 75% since 2014. And the firm repurchased a whopping 8% of its outstanding shares in 2017.
Discover has been returning substantial amounts of cash back to shareholders in the form of dividends and buybacks. The quarterly dividend has increased 75% since 2014. And the firm repurchased a whopping 8% of its outstanding shares in 2017.
Despite the stock’s nice run over the last two years — these shares have risen 70% off their 2016 low — the stock is an attractive value at less than 10 times expected 2018 earnings. Yielding 2%, these shares offer a solid play in the financial-services sector.
Discover provides an excellent growth-value combo. I remain bullish on financial-services stocks and see these shares handily outperforming the broad market this year.
