After the utilities group, one of the common feature of banks should be their safety and long term values. If you move into a neighborhood, one of the features you are looking for is the bank. As long as the amount of loan loss is low, the bank should easily make money, which means for dividend investors it is hard not to have a bank(s) in your portfolio. Which banks are a relative bargain? Sean Pugliese of Wickham Investment Counsel wrote about banks in late March. His criteria:

banks in the S&P 500 index

dividend yield  – annual dividend divided by share price

debt -to -equity ratio – provides a safety feature and is total debt outstanding divided by shareholders equity. A smaller number means less leverage.

price-to-earnings ratio  is the share price divided by earnings per share. The lower the better relative to other companies.

earnings momentum is the change in annualized earnings over the last quarter. A positive number means the earnings are growing and ideally translates in higher share prices and dividend increases.

price-to-book ratio compares the stock price to the book or equity value per share. A lower number is good.

return-on-equity is the net income divided by shareholders equity. The number reflects profitability of the company and higher is better.

Company                     Mkt Cap    Dividend   Debt/              P/E     Earnings   P/B     ROE

(US$ Bil)    Yield %       Equity %                   Mom %                 %

People’s United Fin        5.7           3.6               39.4             19.2      3.3             1.2        5.8

Wells Fargo                   279.5           2.6             176.3            13.9       0.0            1.5        11.8

BB&T Corp                       35.6            2.5               64.4           14.9        3.0           1.8          8.8

Huntington Banc           13.8            2.3              116.4            14.1        -4.2         1.5         8.4

Fifth Third Banc              18.7           2.1             111.4             14.6         4.9          1.2         10.0

JPMorgan Chase           312.2            2.1             194.9            13.6          4.5          1.3         10.0

US Bancorp                       89.2          2.0            100.0            15.4          0.9          2.0        13.6

KeyCorp                             18.1           1.8               96.4            13.6           3.7          1.3          6.3

M&T Bank                          23.8          1.8               58.6            18.4         -0.9       1.6           8.1

Average  or divide 17                       1.9                94.4          15.2            3.2        1.3            8.0

The other banks covered were SunTrust, PNC, Regions, Citizens, Comerica, B of A, Citigroup and Zions.

Linking to dividend paying stocks, these stocks were ranked from the highest dividend yield, but you can easily rank them on other variables. Banks are the drivers of our economy because they give credit to businesses and families. If we have no credit, we pay our bills and not much else. With credit we can expand or think of the future. In investing in banks, you want to realize the profitable dreams. Examine the variables and realize often times you are picking between two or more reasonably equal companies. Each of the companies tend to service or gain the bulk of their business in one geographic area and you will want to know what your views are of the area.

There are more questions than answers, till the next time – to raising questions.