There are plenty of reasons to be sour on banks, but many of their stocks offer tasty yields.
While the
S&P 500
offers a dividend yield of 1.5%, the
SPDR S&P Bank ETF
(ticker: KBE) yields 3.3%, with stocks offering yields well above that level. Even better, those dividends look healthy, with several names poised to grow earnings despite industry headwinds.
The highest dividend yields on average are in the superregional banks—a cohort containing banks with more than $50 billion in assets. The median yield for this group is 4.8%, according to Piper Sandler analysts, with the earnings expected to decrease by 4.7% year over year. But within this group of 25 banks, there are four banks that offer the best of both worlds, earnings growth and yields north of 4.8%:
Columbia Banking System
(COLB),
KeyCorp
(KEY),
U.S. Bancorp
(USB), and
Valley National Bancorp
(VLY).
Other banks that may be worth a look are
Capital One Financial
(COF),
Popular
(BPOP),
Webster Financial
(WBS), and
Western Alliance Bancorp
(WAL). They are expected to have positive earnings growth, but their yields are less enticing, clocking in between 2.4% and 3.9%.
Bank / Ticker | Dividend Yield | Earnings Growth |
---|---|---|
Capital One Financial / COF | 2.4% | 13.2% |
Columbia Banking System / COLB | 7.1 | 8.6 |
KeyCorp / KEY | 7.3 | 13.6 |
Popular / BPOP | 3.4 | 8.9 |
U.S. Bancorp / USB | 4.8 | 4.6 |
Valley National Bancorp / VLY | 4.8 | 4.6 |
Webster Financial Corp/ WBS | 3.9 | 2.2 |
Western Alliance Bancorp / WAL | 3.0 | 3.1 |
Average of the 25 Super Regional Banks | 4.8 | -4.7 |
Source: Piper Sandler
It is no secret that it has been a challenging year for bank stocks. The super regionals have seen their stocks fall by 20% on average, lagging behind the 17% gain in the S&P 500. This spring saw the collapse of three major lenders and remaining banks are expected to see higher funding costs due to higher interest rates as well as increasing regulation aimed to prevent future calamities.
While the sector is expected to keep facing challenges, looking at banks that can maintain—or even grow—their payouts while growing earnings is a good place to be. Of course with any investing decisions, a screen is only a starting place for analysis.
Other factors could weigh on performance. Capital One, for instance, has a much higher percentage of net-charge offs to average loans—standing at 2.82% compared with the group median of 0.24%, reflecting the bank’s specialization in credit cards compared with peers.
Meanwhile, Western Alliance was one of the more volatile stocks this spring—with shares off by 70% in May—as investors fretted about deposit flight. Since then the bank has strengthened its balance sheet and has seen deposits increase.
It may be tough to love banks now but high dividends certainly make them more likable.
Write to Carleton English at [email protected]
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