10 Bank Dividend Stocks to Diversify Your Portfolio

Published February 26, 2022 at 9:38 am EST Updated August 19, 2026 at 7:08 am EDT

In this article we will be taking a look at 10 bank dividend stocks to diversify your portfolio.

S&P Global Market Intelligence has reported that Barclays analysts this January, in a sector-outlook report on banking and financial services stocks, noted that bank stocks are expected to outperform the market this year. In the foreseeable future, analysts can see positive trends in the banking sector including loan growth and low deposit betas.

As such, financial services sector companies like Morgan Stanley (NYSE:MS) and Citigroup Inc. (NYSE:C) are seeing a rise in investor support, rather than a decline. This is unsurprising, as in the first five trading days of January, the S&P 500 financials sector rose by 5.4%, according to the Wall Street Journal. This feat represented the sector’s best start to the year since 2010, and also represented an outperformance when compared to the broader S&P 500 index, which suffered a pullback of 1.9%. Reuters has also reported that bank stocks rose ahead of a key inflation reading at the beginning of the month due to a rise in Treasury yields.

Bank of America Corporation (NYSE:BAC) was among the stocks that saw a gain of over 1% at the beginning of February, showcasing the optimistic performance of the sector as a whole. Wells Fargo & Company (NYSE:WFC) and JPMorgan Chase & Co. (NYSE:JPM) were also among the gainers in February, gaining over 1% each. Additionally, in comparison to other sectors, the banking and financial services sector seems to be sailing smoothly. For instance, the S&P 500 energy sector index sank 2.1% as of this February, while the S&P 500 banking index still rallied 1.9% this month. The outlook for the sector thus seems to be positive so far, to the interest of investors looking to take up more financial services stocks for portfolio diversification.

10 Bank Dividend Stocks to Diversify Your Portfolio

Photo by Mikel Parera on Unsplash

Our Methodology

We have selected bank dividend stocks with strong dividends and dividend histories for our list below.

Bank Dividend Stocks to Diversify Your Portfolio

10. The Bank of New York Mellon Corporation (NYSE:BK)

Number of Hedge Fund Holders: 46

Dividend Yield: 2.3%

The Bank of New York Mellon Corporation (NYSE:BK) is among the most popular bank dividend stocks to diversify your portfolio, because of its strong backing by Warren Buffett. The bank offers custody, trust and depositary, accounting, exchange-traded funds related, and other services to its customers.

Wells Fargo analyst Mike Mayo holds an Equal Weight rating on The Bank of New York Mellon Corporation shares as of this January.

The company’s EPS was $1.04 in the fiscal fourth quarter of 2021, beating estimates by $0.03. Its revenue also beat estimates by $41.42 million, and stood at $4.02 billion.

Warren Buffett’s Berkshire Hathaway is the largest stakeholder in The Bank of New York Mellon Corporation, holding 72,357,453 shares, worth over $4.2 billion, in the company. The total number of hedge funds holding stakes in the company in the third quarter was 46, with a total stake value of $4.7 billion.

Like Morgan Stanley, Bank of America Corporation, and Citigroup Inc., The Bank of New York Mellon Corporation is among the most renowned bank stocks to invest in this year.

9. JPMorgan Chase & Co. (NYSE:JPM)

Number of Hedge Fund Holders: 101

Dividend Yield: 2.6%

JPMorgan Chase & Co. is a financial services company operating through its Consumer & Community Banking (CCB), Corporate & Investment Bank (CIB), Commercial Banking (CB), and Asset & Wealth Management (AWM) segments. This bank stock has raised its dividend for the past nine years, making it one of the best bank dividend stocks to diversify your portfolio.

Erika Najarian, an analyst at UBS, holds a Buy rating on JPMorgan Chase & Co. shares as of this January.

The EPS for JPMorgan Chase & Co. in the fiscal fourth quarter of 2021 was $3.33, beating estimates by $0.30. Its revenue was $29.3 billion.

In the third quarter of 2021, 101 hedge funds were long JPMorgan Chase & Co., with a total stake value of $5.6 billion, compared to 108 hedge funds in the previous quarter, with a total stake value of $4.9 billion.

Miller Value Partners, an investment management firm, mentioned JPMorgan Chase & Co. in its fourth-quarter 2021 investor letter. Here’s what they said:

“I remember writing about the attractiveness of JP Morgan (JPM) right before it lost about a third of its value in the third quarter of 2011 (which didn’t please some of my colleagues!). I believed JPM was a high-quality bank whose prospects were undervalued due to the overhang on the space. It made money every year through the financial crisis.

In the decade-plus since then, JPM has beaten the market nicely (+417% versus SPX +345%) despite significant headwinds for banks (S&P Financial Sector +286%) and value stocks. Low market expectations are a key ingredient to attractive long-term returns!

An earthquake after-shock metaphor helps to explain the situation. Earthquakes relieve tension in physical systems, but aftershocks are common. These aftershocks aren’t as serious as the original event because stresses have been relieved. The financial crisis alleviated tensions in the financial system as weaker players either perished or were shored up with capital. Lessons learned impacted behavior (lower risk-taking behavior and higher propensity for monetary authorities to intervene supportively), which reduced future risk.

Those realities didn’t matter in the short term, but they sure did in the long term.”

8. Morgan Stanley (NYSE:MS)

Number of Hedge Fund Holders: 65

Dividend Yield: 2.9%

Morgan Stanley is among the most sought-after bank dividend stocks to diversify your portfolio, with over 60 hedge funds holding stakes in it. The company provides capital raising and financial advisory services, alongside other financial products and services.

Barclays’ Jason Goldberg holds an Overweight rating on Morgan Stanley shares as of this January.

The company’s earnings history shows an EPS of $2.08 in the fiscal fourth quarter of 2021, beating estimates by $0.12. Its revenue was $14.52 billion.

Our data shows 65 hedge funds long Morgan Stanley in the third quarter, with a total stake value of $4.9 billion. Eagle Capital Management is the largest stakeholder for Morgan Stanley as of the third quarter of 2021, holding 14,561,371 shares worth over $1.4 billion.

7۔ KeyCorp (NYSE:KEY)

Number of Hedge Fund Holders: 36

Dividend Yield: 3٪

KeyCorp (NYSE:KEY), the holding company for KeyBank National Association, provides retail and commercial banking products and services in the US. It is among the safest bank dividend stocks to diversify your portfolio, having raised its dividend for the past 11 years.

Erika Najarian, an analyst at UBS, holds a Buy rating on shares of KeyCorp, as of this January.

The company’s fiscal fourth quarter of 2021 EPS was $0.64, beating estimates by $0.07. Its revenue was $1.95 billion, also beating estimates by $145.28 million.

Out of 867 hedge funds, 36 held stakes in KeyCorp in the third quarter, worth $399 million. Out of these hedge funds, Pzena Investment Management is the largest stakeholder in KeyCorp shares, holding 2,823,949 shares worth about $65 million.

KeyCorp is a bank dividend stock highly popular among hedge funds today, as shown by our hedge fund data. In that manner, it is a notable stock choice, much like Morgan Stanley, Bank of America Corporation, and Citigroup Inc..

6. Toronto-Dominion Bank (NYSE:TD)

Number of Hedge Fund Holders: 17

Dividend Yield: 3.1%

Toronto-Dominion Bank (NYSE:TD) is a Canada-based bank offering financial products and services such as personal deposits, cash management, and investment products. The company has steadily grown its dividend for the past six years, making it one of the most lucrative bank dividend stocks to diversify your portfolio.

As of this February, Meny Grauman from Scotiabank holds a Sector Perform rating on Toronto-Dominion Bank shares.

The company’s earnings history shows an EPS of $1.63 and revenue of $8.06 billion. Both beat estimates by $0.10 and $321.4 million respectively. Toronto-Dominion Bank also gained 22% in the past six months and 5.5% year to date.

Hedge fund data for the third quarter of 2021 shows 17 hedge funds long Toronto-Dominion Bank in that quarter, with a total stake value of $294 million.

While Morgan Stanley, Bank of America Corporation, and Citigroup Inc. are among the top bank stocks to invest in today, Toronto-Dominion Bank is another stock worth keeping an eye on.

5. Citigroup Inc. (NYSE:C)

Number of Hedge Fund Holders: 79

Dividend Yield: 3.1%

Citigroup Inc. is a diversified financial services holding company operating through its Global Consumer Banking and Institutional Clients Group segments. The company is among the most popular bank dividend stocks to diversify your portfolio, with over 70 hedge funds holding stakes in it.

This February, Wells Fargo’s Mike Mayo reiterated an Overweight rating on shares of Citigroup Inc..

The EPS for Citigroup Inc. was $1.46 in the fiscal fourth quarter of 2021, while its revenue was $17.02 billion, beating estimates by $239.7 million.

4. U.S. Bancorp (NYSE:USB)

Number of Hedge Fund Holders: 42

Dividend Yield: 3.2%

U.S. Bancorp (NYSE:USB) is a diversified banking company operating in the US. The company offers ancillary services, alongside mainstream financial products and services, comprising capital markets, treasury management, and a range of other services. It has successfully raised its dividend for the past 11 years, making it one of the more reliable bank dividend stocks to diversify your portfolio.

JPMorgan’s Vivek Juneja holds an Overweight rating on U.S. Bancorp shares as of this February.

According to analyst Juneja, the bank is set to benefit from higher interest rates which will drive up its earnings this year. The company is also venturing into new growth opportunities through its recent partnership with Microsoft on banking with cloud computing.

Our hedge fund data shows 42 hedge funds long U.S. Bancorp in the third quarter, compared to 41 hedge funds in the previous quarter. Their total stake values were $8.4 billion and $8.3 billion, respectively.

3. Royal Bank of Canada (NYSE:RY)

Number of Hedge Fund Holders: 16

Dividend Yield: 3.3%

Royal Bank of Canada (NYSE:RY) is a global diversified financial services company based in Canada. The company has a payout ratio of 38.9%.

Scotiabank’s Meny Grauman holds an Overweight rating on Royal Bank of Canada shares as of this February.

The company’s fiscal first quarter of 2022 earnings report shows an EPS of $2.24, beating estimates by $0.10. Royal Bank of Canada also had revenue of $10.2 billion, beating estimates by $795.5 million.

In the third quarter, 16 hedge funds were long Royal Bank of Canada with a total stake value of $1.1 billion.

Gator Capital Management, an investment management firm, mentioned Royal Bank of Canada in its first-quarter 2021 investor letter. Here’s what they said:

“We own a position in Royal Bank of Canada (“RBC”) and are completing our due diligence on several other Canadian banks. Royal Bank is the #1 bank in Canada. It has a business mix similar to JP Morgan Chase (“JPM”) with strong retail and corporate banking businesses. It also has a significant investment banking and asset management business. From here, we believe Canadian bank stocks will generate attractive returns for shareholders in the medium and long term.

Here is more detail on our investment thesis for Royal Bank of Canada:

1. Bank with consistently high returns – RBC consistently posts Return on Tangible Common Equity (“ROTCE”) in the low 20%. In contrast, JPM has reported ROTCE between 12% and 19% over the last six years. We think this reflects the higher margins of the Canadian banking system.

2. Leading bank in Canada – RBC is the leading bank in Canada. It has the highest returns, the highest market share, and the highest valuation of the five major Canadian banks. We believe other stock market investors will favor RBC when Canadian banks regain favor.

3. Low relative valuation to US Banks – Canadian banks have had premium valuations compared to US banks for a few decades due to their higher and more consistent returns. Over the last 10 years, this valuation premium has almost disappeared. The chart below shows the price-to-tangible book ratio (“P/TB”) of RBC compared to JPM’s. As you can see, in 2011 RBC traded at 3x P/TB while JPM traded at 1x. Now, both banks trade at 2.5x P/TB.

4. Strong growth at City National – RBC’s US Subsidiary, City National Bank, is growing very quickly. RBC purchased City National in 2015. City National was an LA-based bank focused on high-net-worth customers. At the time of the purchase, City National had already expanded and gained traction in San Francisco and New York. Now, City National has branches in Washington, DC, Atlanta, Miami, Dallas, Minneapolis, San Diego, and Las Vegas. City National has a banking strategy similar to that of First Republic and is growing at a comparable rate. We would note that First Republic trades at 26x 2021 estimated earnings.

5. Solid management team – Chief Executive Officer, Dave McKay, has led the bank for the last seven years. He has been at RBC for his entire career and has run several of the business units as he climbed the corporate ladder. Rod Bolger has been Chief Financial Officer for almost five years and has worked at RBC for 10 years. Prior to joining RBC, Bolger worked at Bank of America and Citigroup. We think both men are good bankers and good stewards of shareholder capital.

6. Consistent capital management – RBC has had a consistent policy of reinvesting for organic growth, paying a dividend, and using excess capital to repurchase shares. None of the five major Canadian banks have cut their dividend payouts since World War II. At 3.7%, RBC’s dividend yield is higher than any major US bank.

7. Potential for a stronger Canadian dollar – The Canadian dollar loosely tracks the price of oil. It seems when crude oil is below $60 per barrel, the Canadian dollar trades at 70 cents compared to the US Dollar. When crude oil approaches $100 per barrel, the Canadian dollar trades closer to parity with the US dollar. We do not have a strong view on crude oil prices. Still, we would note that we seem headed toward a strong economic recovery from the pandemic, and crude oil prices generally reflect the level of economic activity.

For the last eight years, we have seen investors shorting Canadian banks due to the housing markets in Toronto and Vancouver. We believe this short thesis is stale and hasn’t come to fruition. We believe different dynamics drive the Canadian housing market than the US housing market in 2008. We do not see the banks engaging in risky lending practices. The substantial problem in the US market in 2008 was due to risky loans with low or no documentation and loans to subprime borrowers. We don’t see evidence of either of these practices in Canada. We admit that the residential property markets in Toronto and Vancouver appear very expensive, but we believe the pricing reflects the strong demand for housing in global cities with land-constrained markets. We think both Toronto and Vancouver will benefit from immigration policies in the US making it difficult for high-quality immigrants to enter. We compare Toronto and Vancouver to New York and San Francisco and see similar pricing. We would point out that both New York and San Francisco fared relatively well during the 2008 US housing crash. Also, we do not see concerning house pricing trends in the rest of Canada.

We do believe there are real risks in the RBC story:

1. Energy Exposure – The Canadian economy is more natural resource dependent than the US economy. Oil and gas production accounts for a significant proportion of the economy. This presents two risks to RBC: 1) direct credit risk to energy companies, and 2) Canadian dollar risk due to the Canadian dollar’s high correlation to the price of oil. As the world moves away from fossil fuels, Canada’s economy will have to transition as well. In the short-term, this is less of a concern due to the economic strength supporting the price of oil.

2. M&A – We would prefer RBC to not make a large acquisition in the US, but we are realistic that they may. We would say their M&A track record is mixed. First, their roll-up of US retail stockbrokers in the 1990s has worked very well. Also, their 2015 acquisition of City National Bank has performed well. However, during the 2000s, RBC bought Centura Bank in North Carolina, Eagle Bancshares in Georgia, and Alabama National BanCorporation. RBC was not able to improve the returns of those three US bank acquisitions and sold the operation to PNC in 2012. RBC lost at least $1 billion over 11 years from these acquisitions. We’re hopeful that RBC’s management team has learned its lesson and won’t try to acquire another generic US bank. We would rather they continue to organically grow the old City National franchise, which focuses on high-net-worth customers in major US cities.

3. Vaccine distribution in Canada – A short-term risk is that vaccine distribution in Canada is going more slowly than in the US. So, the Canadian economy might recover more slowly than the US economy. We believe this risk is small because we think stock market investors will look through this issue. However, we are concerned about further lock-downs in Canada, like the recent second shut-down in Ontario.

Given the large rally in US bank stocks, we are moving out of some US banks and into Canadian banks. We have long admired the banking oligopoly in Canada, but we had stayed away due to the hefty premium that the Canadian banks had over the US banks. That premium is largely gone now. We think the Canadian banks will regain their premium valuation over the US banks. We see parallels between buying the Canadian banks now and our call to buy “Growth banks” like SIVB and WAL in 2019. Growth banks had lost their premium valuation because they were asset-sensitive. They have since regained their premium valuation. We think the same thing will happen for the Canadian banks.”

2. Bank of Montreal (NYSE:BMO)

Number of Hedge Fund Holders: 12

Dividend Yield: 3.5%

Bank of Montreal (NYSE:BMO) is yet another Canadian bank stock on our list. The company has raised its quarterly dividend for the past six years and has a payout ratio of 33%.

Stifel’s Mike Rizvanovic holds a Buy rating on Bank of Montreal shares as of this February.

The EPS for Bank of Montreal in the fiscal fourth quarter of 2021 was $2.59, beating estimates by $0.08. Its revenue was $5.12 billion. The company’s earnings are expected to grow by 3% in 2022, and it is also set to benefit from its acquisition of the Bank of the West, based in the US, according to analyst Rizvanovic.

The number of hedge funds holding stakes in Bank of Montreal in the third quarter was 12, with a total stake value of $142 million.

1. The Bank of Nova Scotia (NYSE:BNS)

Number of Hedge Fund Holders: 17

Dividend Yield: 4.3%

The Bank of Nova Scotia (NYSE:BNS) is a Canadian bank operating through its Canadian Banking, International Banking, Global Wealth Management, and Global Banking and Markets segments. Analysts at Stifel have optimistic outlooks for the company, expecting an earnings growth of 6% over the next two years. As such, the company is among the most promising bank dividend stocks to diversify your portfolio.

Stifel’s Mike Rizvanovic holds a Buy rating on The Bank of Nova Scotia shares as well, as of this February

The earnings history for The Bank of Nova Scotia shows an EPS of $1.64 and revenue of $6.02 billion in the fiscal fourth quarter of 2021. The EPS beat estimates by $0.15.

Out of 867 hedge funds, 17 hedge funds were long The Bank of Nova Scotia in the third quarter, and 14 hedge funds were long the stock in the second quarter. Their total stake values were $193 million and $223 million, respectively.

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