Banking & Finance

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

What stands out here is that the money center bank now yields more than 4.1% for its dividend, based on Friday’s closing price of $49.30. This stock is still down about 17% from its 52-week high and down about 25% from its peak prior to the Wells Fargo fake-account and incentivization scandals rocked the company and eventually forced John Stumpf out of his role leading the bank.

There are also quite attractive dividend yields in the multiregional and more well-known names outside of the money-center banks. In some cases, these banks may have far larger growth opportunities ahead via mergers or other expansion plans while the big banks simply are blocked by regulations from acquiring more deposits or by taking on more risks. That said, not everyone is on board about the bank attractiveness, a Merrill Lynch downgrade stood out handily. Still, the regional banks featured below come with valuations that are handily lower than the S&P 500 as a whole, and the dividend yields generally are in the 3% to 4% range.

Citizens Financial Group Inc. (NYSE: CFG) has a market capitalization of about $17 billion and a 3.4% dividend yield. Its forward P/E ratio is 10.2.

Fifth Third Bancorp (NASDAQ: FITB) has a market cap of close to $22 billion, and the bank now comes with a dividend yield of about 3.2%. It is valued at almost 10 times forward earnings. It received no Fed objection to distribute approximately $2 billion in capital through common share repurchases and by increasing its per-share common dividend.

Huntington Bancshares Inc. (NASDAQ: HBAN) has a $15 billion market cap, and its dividend yield now screens at 3.83%. The forward P/E ratio is 10.8.

KeyCorp (NYSE: KEY), the parent of KeyBank and KeyBanc Capital Markets, has a market cap of close to $19 billion. Its current dividend yield is 4.0%. KeyCorp is valued at 9.8 times forward earnings.

Northern Trust Corp. (NASDAQ: NTRS) raised its quarterly cash dividend to $0.70 per share on July 23, an increase of approximately 17% from the prior $0.60 per share. The new $2.80 annualized dividend per common share represents a dividend yield of 2.98%, based upon its $99.64 closing price on Friday. The parent company of Northern Trust has now more than doubled its dividend payout since 2015 alone. Northern Trust still comes with a premium valuation of 14 times forward earnings.

Regions Financial Corp. (NYSE: RF) announced on July 24 that its board would increase its quarterly common stock dividend payout by almost 11% to $0.155 per share. This new $0.62 annualized per share dividend generates a dividend yield of 3.85%, based on a recent share price of $16.04. What’s impressive here is that Regions already had doubled its dividend from 2017 through early in 2019. Regions is valued at almost 10 times expected earnings.

SunTrust Banks Inc. (NYSE: STI) is in the midst of changing its name to Truist on the heels of its merger with BB&T Corp. (NYSE: BBT). The current yield screens at 3.00%, but with the merger many investors and analysts will have a hard time integrating the numbers for a number of quarters. SunTrust’s forward P/E ratio was under 12.

Zions Bancorp. (NASDAQ: ZION) recently raised its dividend to $0.34 from $0.30 per share, and it was allowed to pay out more of its income to shareholders with a $275 million buyback for the third quarter. With a price of $45.16, its new dividend yield will be 3.0% for new investors. Zions is valued at about 10 times forward earnings.

Some investors might choose to invest in the Financial Select Sector SPDR Fund (NYSEARCA: XLF) rather than taking on individual stock risks. The problem here is that Berkshire Hathaway dominates that ETF and rival financial sector ETFs. Many other nonbank financial companies also have high weightings in the financial sector ETFs, which may diminish targeted dividend yields.

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