2 Financial Stocks to Buy and 1 to Approach With Caution

Despite the S&P 500 index (SNPINDEX: ^GSPC) trading near record highs, you can still find good investment ideas in the financial sector. For those who like growth stocks, particularly dividend growth stocks, Visa (NYSE: V) could be a good choice. For yield-seeking investors, Dividend King Federal Realty (NYSE: FRT) should be strongly considered.

But dividend lovers shouldn't get so enamored of AGNC Investment's (NASDAQ: AGNC) 13%+ dividend that they overlook this crucial fact about the company. It is well run, but it may not be the investment you expect based on that lofty yield.

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Visa's valuation looks reasonable

Payment processor Visa has a long history of growth. Its business has expanded alongside the shift from cash to card payments. To put a number on that, in 2015 the company handled 71 billion transactions, up 9% year over year. In 2025, it handled 257.5 billion transactions, up 10% in a year. Visa's growth is not slowing down, which helps explain why it is normally afforded a premium in the market.

However, the company's price-to-sales and price-to-earnings ratios are both below their five-year averages right now. That hints that the stock is reasonably priced, if not a little cheap. The yield is fairly low at 0.8%, but the dividend has grown at an annualized rate of 17% over the past decade. If you are a growth investor or a dividend growth investor, you'll probably want to dig into Visa's story.

Federal Realty is the "King" of REITs

Federal Realty is an income stock, noting its attractive 3.9% dividend yield. That said, the real draw with this strip mall and mixed-use property landlord is consistency. Federal Realty is the only real estate investment trust (REIT) that is also a Dividend King, having increased its dividend annually for over five decades.

The REIT is focused on quality over quantity, with a portfolio of only around 100 properties. It takes a very active management approach, frequently buying, selling, and redeveloping assets. The end result is a portfolio with higher average population densities and higher average incomes than any of Federal Realty's closest peers.

Federal Realty isn't an exciting business. It tends to be a slow-and-steady grower. But if you are looking for a reliable dividend stock, this REIT is hard to beat.

AGNC Investment isn't a dividend stock

That said, don't get so enamored of dividends that you overlook key dividend risks. For example, AGNC Investment has a huge 13%+ dividend yield, but it isn't a particularly reliable dividend stock. As the chart below shows, the dividend has not only been volatile over time but has also been declining for more than a decade. The stock price has tracked the dividend both up and down.

AGNC data by YCharts

What's interesting is that AGNC Investment is not a bad investment or a troubled company. It is a fairly well-respected mortgage REIT. The dividend and price volatility are pretty normal for a mortgage REIT. And, if you reinvested the dividends over time, your total return would be roughly similar to that of the S&P 500 index. That's a pretty impressive total return story, even if the stock is a less-than-desirable dividend story. AGNC Investment could be attractive to investors looking to diversify their portfolios.

Three finance options; two are reliable dividend stocks

Visa is a solid dividend growth stock that is still growing its business. Federal Realty is a slow-and-steady, high-yield stock with a proven business model. And AGNC Investment has a huge yield, but investors need to tread with caution because it's really a total return investment. In the end, that's three potential finance options. Just tread carefully with AGNC Investment, since it may not be what it seems at first glance.

Reuben Gregg Brewer has positions in Federal Realty Investment Trust. The Motley Fool has positions in and recommends Visa. The Motley Fool has a disclosure policy.