AI is being used as a tool to make Financial sector companies more profitable. The sector is using AI for financial planning, underwriting, trading, and fraud protection, among other areas, allowing professionals to reduce time working on mundane tasks and instead focus on core tasks that drive their businesses. Financial advisors are using AI to draft financial plans and portfolios for clients, identifying patterns in spending and savings habits. In trading, AI allows algorithms to analyze large sums of data and historical trends in order to recognize patterns and movements in markets. Since it uses an algorithm, AI can digest and analyze huge sums of information in order to make trades faster, smarter, and more accurate. AI also is used in underwriting. By scanning a company's historical data and identifying trends, "AI-driven underwriting systems" can automate risk assessment, such as optimal loan-to-value and debt-to-income ratios. But artificial intelligence may be the most impactful in identifying and combating credit-card fraud. Card companies use AI models that analyze data patterns and customer spending habits almost instantly. As a result, suspicious payments or transactions are flagged immediately -- and the amount of time it takes for both the company and the customer to identify suspicious activity is decreased significantly. We believe that the use of AI will continue to grow and will help Financial sector companies be more successful. Here is a list of Argus BUY-rated stocks in the Financial sector that are leaders in the use AI.

Dividend income is often overlooked amid gyrations in the stock market. But dividends are an important element of return. Dividend income accounted for 42% of the total return of the S&P 500 between 1930 and 2012, according to Hartford Funds. And that's just the average. In some of those decades, dividends accounted for more than 50% of total returns and even 100% of returns. More recently, dividends have accounted for a smaller portion of returns, at around 15%-20%. Not all dividends are created equal, though, and it is important to understand the difference between the two main categories: high-yield stocks and dividend-growth stocks. High-yield stocks typically have dividends that pay out in the 5%-8% range. Though the income appears attractive, the share prices of high-yield stocks may be at risk. Dividend-growth stocks typically have lower yields, often in the 1.0%-2.5% range. But the lower-yielding dividends are not likely to be a huge component of cash flow, leaving management teams with other value-additive options for deploying cash. Further, while the yields are not as high, management teams may be more likely to boost the payouts over time, as earnings grow.

Our rating on the Financial sector is Over-Weight. The Fed's rate-hike campaign is expanding net interest margins for banks. We also look for recovery in fee-based businesses, bond issuance, and M&A as the rate cycle winds down. Still, with inflation running hot, companies may cut back on hiring and investments, and thus on business loans. As of the end of April, the sector accounted for 13% of the S&P 500. The sector was outperforming the market with a gain of 12.0%. It underperformed the market in 2023, with a gain of 7% compared to a gain of 24% for the S&P 500. The sector includes money center banks, regional banks, investment banks and brokerages, exchanges, insurers, and financial data companies. Here are the Financial companies that either are on our Focus List or are used in our model portfolios.

In this edition, we assess exposure of some consumer finance banks; Compass Minerals puts its dividend on ice; Humana's stock pitch shows a rare opportunity; and Enel SpA, Warner Bros. Discovery, and Puma.