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Are these the best financial sector stocks to buy?

The financial sector has provided some great returns for investors over the years. The ability to scale-up operations and expand margins has allowed companies operating in the sector to produce long-term growth in earnings and value for shareholders.

While the major banks are often the “go-to” for investors looking for dividend-paying blue-chips, there are a number of other companies in the sector that could make good additions to a portfolio.

Quality

Perpetual Limited (ASX: PPT) is one of Australia’s most respected fund managers. With a market capitalisation near $2 billion and funds under management (FUM) of around $30 billion, the company is significantly leveraged to future growth in equity markets and industry growth and consolidation, Perpetual’s recent acquisition of The Trust Company is an example of the firm’s ability to bolt on a competitor to its structure.

Growth

Magellan Financial Group Ltd (ASX: MFG) has exhibited outstanding growth since listing in 2006. Its share price has risen 400% and the company now boasts over $21 billion in FUM. With a focus on investing in international shares, Magellan has scope to significantly expand its business given its large investment universe. As such, while the company has already experienced exponential growth, it could still grow strongly for many years to come.

High Yield and Defensive

IOOF Ltd (ASX: IFL) is a diversified financial services company that offers a broad range of services to a broad range of clients – making the stock relatively defensive. The company reported an adjusted profit of $108.8 million for the 2013 financial year and administers more than $124.7 billion in client monies. With a consensus analyst forecast for a full-year dividend of 46.8 cents per share, the stock currently trades on a fully franked dividend yield of 5.4%.

Foolish takeaway

Given the positive long-term outlook for the financial sector in Australia and the potential for domestic financial service companies to export their services overseas, particularly to Asia, the sector is well worth monitoring for investment opportunities.

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