Dividends and Banking on safety and value in a strengthening US sector

About a month ago, the Federal Reserve announced the banking sector had faired better than expected throughout COVID and relaxed some of its restrictions. This was good news for the 5 biggest banks and all of them announced share buybacks and higher dividends. If the 5 biggest banks are doing well, what about the entire sector particularly given banks make money by giving out credit for a fee or loans. As long as loan losses are very low, banks should be profitable.

Sean Pugliese and Allan Meyer Elkon & Wickham Investment Counsel Inc examined the sector to come up with some answers. Their criteria was:

the bank sector in the S&P 500 index

market capitalization as a safety factor, the larger the banks to be more stable and have diverse revenue streams

dividend yield is the annualized projected dividend divided by the recent share price

Debt to equity ratio is the total debt outstanding divided by shareholder’s equity – the less debt the better.

price to earnings ration (P/E) is the recent share price divided by the projected earnings per share. The lower the number the better the value.

Price to Book (P/B) compares the recent share price with the book or equity value per share. The lower number is preferred.

ROE is a profitability ratio (net income divided by shareholders’ equity) a higher number is better

Company Recent Mkt Cap Div Debt/ P/E P/B ROE 52W Ttl

Price $ ($ bil) Yld % Equity % % Rtn %

JPMorgan Chase 156.03 472.3 2.3 194.1 25.2 1.7 12.0 68.9

Bank of America 41.15 352.6 1.7 165.1 13.3 1.3 6.8 77.8

Wells Fargo & Co 45.07 186.3 0.9 147.1 12.2 1.0 1.0 79.3

Citigroup Inc 70.41 145.5 2.9 243.6 8.1 0.7 5.9 40.8

US Bancorp 57.57 85.8 2.9 97.6 12.7 1.7 10.0 62.0

PNC Financial 192.79 81.9 2.6 62.4 14.4 1.5 11.8 93.2

Trust Financial 56.3 75.4 3.2 59.4 11.8 1.1 6.8 58.5

First Republic Bank 190.55 33.6 0.5 15.1 37.9 2.6 9.3 81.2

SVB Financial Group 565.21 30.7 0.0 10.5 20.9 3.1 16.8 164.8

Fifth Third Bancorp 38.4 27.1 2.8 68.9 11.6 1.2 6.2 111.4

Huntington Bancshares 14.35 21.2 4.2 65.7 10.2 1.1 6.8 71.5

KeyCorp 20.72 20.1 3.6 81.7 10.0 1.1 7.9 81.1

The other banks on the list were Citizens Financial, Regions Financial, M&T Bank, Comerica, Zions Bancorp and People’s United

Linking to dividend paying stocks, the economy is based on credit and when credit is flowing banks do very well. The Federal Reserve ensured banks would survive and come out of COVID well positioned to help the economy grow by providing loans. Fortunately most banks are in good shape and the stock performance reflects the situation. It is hard not to own a bank in a dividend portfolio and if you are normal person you have a bias towards the bank or banks you use or are in your region. However banks operate in all regions of the country and list such as these say we might broaden our horizons.

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

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