Despite a reasonable set of second-quarter results, many of the top money center and regional banks sold off some or just held their ground. The reality for growth investors is that many of the top U.S. banks are looking like solid value plays now, and with the seasonal slippery slope for stocks right around the corner, it may make sense to shift some capital to the more secure and dividend-paying banks.
One key reason to be somewhat more bullish on the banks after earnings is that at some point interest rates will go higher. With inflation nudging the Federal Reserve ever closer to the end of the massive quantitative easing program as well, now may be a great time to review the top companies. The analysts at Jefferies look at the sector as a value play and noted this:
We were out with an earnings recap for the large cap banks. Earnings for the group largely saw loans stabilizing, deposits strong, fees beating and outstanding credit. In terms of outlooks, Net interest income is expected to be mixed in the third quarter with stabilizing loans, lower yields on new loans/securities, positive deposit growth and an extra day. In addition, fee outlooks expect normalization of IB/trading after another big quarter. We also moved more reserve releases into 2021 from 2022, with the consensus trend for provision estimates. still biased lower on lower losses. The core of the long-term bank thesis holds: leverage to higher rates and economic improvement, improving reported earnings per share, solid capital returns and attractive relative valuations.
Seven banks were cited as top ideas at Jefferies, but here we focus on the five with the highest dividend payouts.
Fifth Third Bancorp
This top super-regional bank stock remains incredibly cheap right now. Fifth Third Bancorp (NASDAQ: FITB) is a diversified financial services company headquartered in Cincinnati, Ohio, and the indirect parent of Fifth Third Bank, National Association, a federally chartered institution.
As of March 31, 2021, the company had $207 billion in assets and operated 1,098 full-service banking centers and 2,383 Fifth Third branded ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia, North Carolina and South Carolina. In total, Fifth Third provides its customers with access to approximately 53,000 fee-free ATMs across the United States.
Fifth Third is among the largest money managers in the Midwest and, as of March 31, 2021, had $464 billion in assets under care, of which it managed $58 billion for individuals, corporations and not-for-profit organizations through its Trust and Registered Investment Advisory businesses.
The company posted very solid results, and many on Wall Street feel that management’s guidance is very conservative.
Shareholders receive a 2.99% dividend. The Jefferies price target for Fifth Third Bancorp stock is $46. The consensus target across Wall Street is $44.04. The shares closed on Monday at $36.08.