Banking & Finance

How Banks Are Replacing Treasuries, Utilities and CDs for Income Investors

> Yield: 2.8%
> Forward P/E: 8.5

Citigroup Inc. (NYSE: C) is a money center bank that many parts of the country might not even have physical access to, but it still has plenty of international exposure that can help drive growth. While Citigroup may have been perceived as the least healthy money-center bank after the recovery, its current share price of $72.16 compares with a stated book value of $79.40 per share, and it is the only money-center at a discount to book value, even if its tangible book value is $67.64 per share.

Citi received no objection from the Federal Reserve about increasing its common stock dividend from $0.45 to $0.51 per share and about a common stock repurchase program of up to $17.1 billion. That new yield is 2.82%, and the buyback would imply a retirement of more than 10% of common shares outstanding. Citigroup even recently was picked as one of the three big bank holding company winners from the Fed’s rate-cutting cycle.

> Yield: 3.1%
> Forward P/E: 11.0

JPMorgan Chase & Co. (NYSE: JPM) is still considered the most healthy of the big banks due to its premium over book value. Trading at $116.22 a share, JPMorgan ended the second quarter with a stated book value of $73.77 per share and a tangible book value of $59.42 per share.

JPMorgan confirmed after the CCAR stress test that the Federal Reserve Board did not object to its capital plan for 2019, and the bank will increase its quarterly common stock dividend to $0.90 from the current $0.80 payout per share. It further authorized gross repurchases of up to $29.4 billion in the four-quarter period for new common equity repurchases. This gives it a 3.10% dividend yield as of now and the bank is set to repurchase close to 8% of its outstanding shares. Its shares have even recovered and gone positive after what was considered a lackluster earnings report.

PNC Financial
> Yield: 3.2%
> Forward P/E: 12.9

PNC Financial Services Group Inc. (NYSE: PNC) has rapidly increased its book value per share to $101.53 as of the end of the second quarter of 2019, up from $98.47 at the end of the first quarter alone and $92.26 per share a year earlier. PNC’s board of directors raised the quarterly cash dividend on common stock by $0.20 per share, or by 21%, to $1.15 per share. PNC’s post-CCAR stress test also will allow for share repurchase programs of up to $4.3 billion for the four-quarter period, beginning in the third quarter of 2019, compared with a current $63 billion market value. That generates a 3.22% yield, based on the most recent share price of $142.80.

As of the end of the first quarter of 2019, PNC also still owned more than 34 million shares of BlackRock Inc. (NYSE: BLK), and that 22% stake would be worth an implied amount of more than $16 billion today.

U.S. Bancorp
> Yield: 2.6%
> Forward P/E: 13.5

U.S. Bancorp (NYSE: USB) has a $91 billion market cap and comes with a 2.58% dividend on last look. The bank said after its CCAR stress test review that it would be raising its quarterly dividend to $0.42 per common share, a gain of 13.5%. This is expected to increase the annual dividend equivalent to $1.68 per common share. It also has approved a four-quarter authorization to repurchase up to $3.0 billion of its common stock.

Wells Fargo
> Yield: 4.1%
>Forward P/E: 10.0

On July 23, Wells Fargo & Co. (NYSE: WFC) formally announced that it was increasing its quarterly dividend to $0.51 per share. This six cent per share hike represented an increase of 13% from the prior payout. While the dividend increase announcement has been made, this was largely anticipated after the Federal Reserve’s recently concluded CCAR plan included no objections, as well as for higher share buybacks.

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