The Superregional Banks: A Lucrative Group
One subset of banks, known as superregional banks, stands out in terms of dividend yields and asset size. These banks typically manage over $50 billion in assets and boast an impressive median yield of 4.8%. Despite an expected 4.7% year-over-year decrease in earnings, four banks within this group manage to deliver both robust earnings growth and yields above the 4.8% mark. The standout performers among these banks include:
- Columbia Banking System (COLB)
- KeyCorp (KEY)
- U.S. Bancorp (USB)
- Valley National Bancorp (VLY)
Other Promising Bank Stocks to Watch
Apart from the superregional banks mentioned above, there are a few other notable banks worth keeping an eye on. Although their dividend yields may not be as enticing as those in the superregional category, they still offer positive earnings growth prospects. These banks include:
- Capital One Financial (COF)
- Popular (BPOP)
- Webster Financial (WBS)
- Western Alliance Bancorp (WAL)
Their dividend yields range between 2.4% and 3.9%.
Banks may have garnered skepticism in recent times, but for income-seeking investors, high-yielding bank stocks present an appealing opportunity. By investing in well-performing banks with healthy dividends and the potential for future growth, investors can benefit from both regular income streams and the possibility of capital appreciation.
A Challenging Year for Bank Stocks
It has undoubtedly been a challenging year for bank stocks. The super regionals, in particular, have felt the impact with an average 20% decline in their stocks, while the S&P 500 experienced a 17% gain. This disparity can be attributed to various factors including the collapse of three major lenders in the spring. Additionally, remaining banks are expected to face higher funding costs due to rising interest rates and increased regulation aimed at preventing future financial crises.
Identifying Resilient Banks
Despite the ongoing challenges, there are still banks that have managed to maintain, and even grow, their payouts while simultaneously increasing earnings. Although it is important to note that utilising a screening process serves merely as a starting point for further analysis.
Factors to Consider
It is crucial to consider other factors that may impact a bank's performance. For instance, Capital One has a significantly higher percentage of net-charge offs to average loans compared to its peers—with a standing of 2.82% compared to the group median of 0.24%. This discrepancy reflects Capital One's specialization in credit cards.
On the other hand, Western Alliance experienced substantial volatility in its stock during the spring, plummeting by 70% in May due to concerns over deposit flight. However, the bank has since strengthened its balance sheet and witnessed an increase in deposits.
High Dividends Amidst the Challenges
While it may be difficult to find love for banks in the current environment, it is worth noting that high dividends can make them more appealing.