Citigroup offers a lower yield but also lower valuation
Income investors might like JPMorgan Chase & Co. (NYSE:JPM) and because of their much higher dividend yields. Both JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) offer their shareholders a much higher dividend yield at 2.8%. However, both of them have a much higher payout ratio, at 21% for JP Morgan and 26% for Wells Fargo. Those two banks were valued at much higher price-to-book values. JPMorgan Chase & Co. (NYSE:JPM) is trading at $54.90 per share, with the total market cap of $207.6 billion. It is valued at more than 9 times its forward earnings and 1.05 times its book value. At $43.40 per share, Wells Fargo & Co (NYSE:WFC) is worth $229.90 billion. It is valued at 10.9 times its forward earnings and 1.55 times its book value.
Looking forward, I like Wells Fargo & Co (NYSE:WFC) the most as it plans to repurchase a higher amount of shares in 2013 than 2012. If we just assumed that Wells Fargo spend a similar $4 billion in share repurchases like in 2012, the repurchase yield might reach around 1.74%. Including the dividend yield of 2.8%, the total yield for 2013 could stay around 4.54%. JPMorgan Chase & Co. (NYSE:JPM) will also return cash to its shareholders via a $6 billion authorization of share buybacks through the first quarter of next year. Thus, JPMorgan Chase & Co. (NYSE:JPM)’s total yield might be the highest at nearly 5.7%. Citigroup Inc (NYSE:C) seems to give investors the lowest potential total yield at 1.76% (with the plan to buy back $1.2 billion worth of shares).
My Foolish take
All of those three mega banks seem to be good stocks for investors to hold in a long run. Wells Fargo & Co (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM) are more attractive in terms of total yield to shareholders (dividends + share buybacks), while Citigroup is more attractive in terms of price-to-book valuation.
I personally think that Citigroup Inc (NYSE:C), with the strong second quarter earnings results, global banking franchise, should be trading for at least its book value, which would be a gain to investors of about 17% from current prices.
Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Citigroup Inc (NYSE:C) , JPMorgan Chase & Co. (NYSE:JPM), and Wells Fargo & Co (NYSE:WFC).
The article Which Megabanks Are Good for Investors Now? originally appeared on Fool.com.
Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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