In this article, we will take a look at some of the best dividend stocks from the regional banking sector.
The year 2024 proved to be a strong one for major US banks, with the six largest institutions collectively reporting a 20% increase in net profits compared to the previous year, according to FactSet data. This performance ranks among the most successful years for the US banking sector in the past two decades. The industry rebounded significantly following the widely publicized bank failures of 2023, which saw several prominent lenders collapse. Based on Financial Times estimates, trading revenue for the year climbed to $123 billion, reflecting a 10% rise from 2023, while investment banking fees jumped 34% to $36 billion. This surge was driven by a recovery in dealmaking activity later in the year, as more companies moved forward with equity and debt offerings.
Regional banks have been gaining momentum within the banking sector following the regional banking turmoil of spring 2023, which prompted lenders to prioritize liquidity, often at any cost. While their performance was strong relative to the Russell small cap index, it still fell short of the broader market’s full-year return of over 25.02%. Despite the gains in 2024, bank stocks have lagged the broader market over multiple years, creating an attractive investment opportunity at historically low valuations. By the end of the year, the price-to-earnings (P/E) multiples of the Regional Banking Index and Community Bank Index were nearly half that of the broader market’s, highlighting their relative discount.
Moreover, in the fourth quarter of 2024, approximately two-thirds of US regional banks reported higher earnings compared to the previous year. According to S&P Global Market Intelligence, 35 out of 51 banks with assets between $10 billion and $100 billion saw year-over-year growth in earnings per share (EPS) for the fourth quarter, based on financial reports released between January 13 and January 24. In addition, 27 regional banks posted quarter-over-quarter improvements, while 22 recorded EPS gains on both a quarterly and annual basis. Meanwhile, only 11 regional banks experienced EPS declines in both comparisons.
A report from S&P Global Ratings noted that fourth-quarter net income improved due to easing pressures on net interest margins (NIM) and an increase in fee income. For the full year 2024, the net income benefited from reduced provisions and stable fee income, though NIM compression partially offset these gains. Regional banks saw another consecutive increase in net interest income (NII) during the quarter, supported by modest loan growth and an improved NIM. However, for the full year, NII remained under pressure.
The report further mentioned that in the fourth quarter, median NIM rose by 5 basis points to 3.14%, as declining deposit costs outweighed the impact of lower loan yields and asset repricing. The firm anticipates a slight increase in earnings for 2025, driven by the possibility of higher NIMs and a gradual uptick in loan growth.
The banking sector remains a favorite among investors as it ranks among the top two sectors for dividend payments. An S&P Global report estimated that banks worldwide distribute approximately $380 billion in dividends. Given this, we will take a look at some of the best dividend stocks from the regional banking sector.
Our Methodology
For this article, we used a Yahoo Finance screener to identify regional banking companies. From the resultant list, we picked 11 stocks with the highest number of hedge fund investors, as per Insider Monkey’s database of Q4 2024. The stocks are ranked in ascending order of hedge funds’ sentiment towards them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
11. East West Bancorp, Inc. (NASDAQ:EWBC)
Number of Hedge Fund Holders: 33
East West Bancorp, Inc. (NASDAQ:EWBC) is a California-based bank holding company that offers a wide range of commercial, wealth management, and international services. With 98 branches across major metropolitan areas in the US and four locations in Asia facilitating cross-border business, the company leverages its extensive experience in international banking. In addition to serving a high-growth demographic and catering to a lucrative market niche, East West has consistently delivered strong profitability. A comparison with industry peers reveals that the company has maintained superior credit performance over the past decade while outperforming its competitors. In the past 12 months, the stock has surged by nearly 3%.
In the fourth quarter of 2024, East West Bancorp, Inc. (NASDAQ:EWBC) reported revenue of $675.8 million, which showed a 4% growth from the same period last year. The revenue also beat analysts’ estimates by $17.6 million. It also achieved new highs in net income and earnings per share. The company delivered a 17% return on average tangible common equity for its shareholders. Deposits grew by over $7 billion, underscoring the strength of its customer relationships. In addition, fee income increased by 12% year-over-year, reaching a record level, driven by strong contributions from wealth management, lending, and deposit account fees.
With a solid capital foundation and industry-leading profitability, East West Bancorp, Inc. (NASDAQ:EWBC) announced an additional $300 million in share repurchase authorization. On January 27, the company declared a 9.1% hike in its quarterly dividend to $0.60 per share. This marked the company’s seventh consecutive year of dividend growth, which makes EWBC one of the best dividend stocks on our list. The stock has a dividend yield of 3.08%, as of April 3.
10. Fifth Third Bancorp (NASDAQ:FITB)
Number of Hedge Fund Holders: 39
Fifth Third Bancorp (NASDAQ:FITB) is an American diversified financial services company that offers comprehensive banking solutions according to the needs of small businesses, middle-market companies, and large corporations. It is among the select US banks that have repeatedly earned recognition as one of Ethisphere’s World’s Most Ethical Companies.
In the fourth quarter of 2024, Fifth Third Bancorp (NASDAQ:FITB) reported revenue of $2.18 billion, which grew slightly by 0.37% from the same period last year. Its net income available to common shareholders came in at $582 million, up from $492 million in the prior-year period. The company’s continued investment in and execution of its strategic growth priorities have delivered strong results. In the fourth quarter, the total consumer households exceeded 2.5 million, and 21 new branches were opened in high-growth markets. Both the wealth and asset management and capital markets divisions saw double-digit revenue growth compared to the same quarter last year. In addition, commercial payments revenue increased by 7%, contributing to the expansion of new payments-led relationships.
On March 20, Fifth Third Bancorp (NASDAQ:FITB) declared a quarterly dividend of $0.37 per share, which was in line with its previous dividend. Overall, the company has been growing its payouts for 12 consecutive years, which makes FITB one of the best dividend stocks on our list. In addition, it returned $1.6 billion to shareholders in FY24. The stock supports a dividend yield of 4.17%, as of April 3.
9. KeyCorp (NYSE:KEY)
Number of Hedge Fund Holders: 43
An American retail banking company, KeyCorp (NYSE:KEY) ranks ninth on our list of the best dividend stocks. The bank offers a wide range of retail and commercial banking services to its consumers. The company has been adopting a more balanced growth strategy in consumer banking, supported by the expansion of its digital banking capabilities. A strategic investment from Scotiabank has provided a significant growth opportunity while reinforcing financial stability. This capital infusion strengthens the company’s financial flexibility, enabling it to advance key strategic priorities, particularly the realignment of its securities portfolio.
In the fourth quarter of 2024, KeyCorp (NYSE:KEY)’s earnings per share and revenue reflected the impact of its previously announced securities portfolio repositioning. However, on an adjusted basis, revenue grew 16% year-over-year and 11% sequentially. Net interest income increased by 10% compared to the previous quarter, while adjusted fees recorded a notable rise over the same period. The company delivered positive operating leverage for the second consecutive quarter on a year-over-year basis. In addition, net charge-offs declined by 26% from the prior quarter, and criticized loans were reduced by 7%.
KeyCorp (NYSE:KEY) currently offers a quarterly dividend of $0.205 per share and has a dividend yield of 5.81%, as of April 3. The company is a reliable dividend payer as it has never missed a dividend since 1985.
Hedge Fund Resource Center