In this article, we will take a look at 10 best bank stocks for dividends.
The COVID-19 pandemic was an unexpected event that led to an economic recession, causing widespread concern and global shock. The banking industry was not immune to this. According to McKinsey, the problems caused by the pandemic for the banking industry would unfold in two stages. The first stage would be significant credit defaults, which will last until late 2021. And in the second stage, amid a sluggish global expansion, banks will face a substantial risk to continuing activities, which may last until 2024. Around 2020 and 2024, $1.5 trillion to $4.7 trillion in accumulated sales could suffer, depending upon several factors including risk, global recovery and overall economic situation.
Billionaire investor Warren Buffett has been a long-time supporter of major American banks such as JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Company (NYSE:WFC). The Covid-19 pandemic, however, prompted the billionaire investor to turn his focus to healthcare and technology stocks. In 2020, Berkshire Hathaway sold interests in nine U.S. bank and financial companies, including JPMorgan Chase & Co. (NYSE:JPM) and PNC Financial Services Group Inc (NYSE:PNC).
However, the banking industry is expected to recover within five years of the pandemic, given they can put in the effort required in performance and capital management. In a study by consulting firm Deloitte, the average return on equity (ROE) in the U.S. banking sector will rebound to 11.7% in 2022.
Digital Transformation in the Banking Industry
The COVID-19 pandemic further increased the digital transformation in the banking industry, with more people forced to stay at home during the enforced lockdown. In 2020, around 86.5% of Americans checked their bank balance on a mobile device. In the same year, there were 244.2 billion application downloads, averaging 7,727 installs per second. According to statistics from cybersecurity website dataprot, in 2021, the smartphone app industry is expected to raise approximately $693 billion in revenue from downloads.
Many established banks are hopping on the digital age trend. Almost all the best bank stocks for dividends in our article have robust online operations. For instance, in 2018, JPMorgan Chase & Co. (NYSE:JPM) set aside $10.8 billion for technology spending, with $5 billion set aside for fintech funding. In the third quarter of 2020, the company reported a total of 55 million active online users. As of May 7, JPMorgan Chase & Co. (NYSE:JPM) has a market cap of $486.4 billion and offers a dividend yield of 2.29%.
British multinational investment bank HSBC Holdings plc (NYSE:HSBC) is another notable banking company that is going through a digital transformation. The company joined the move to online banking between 2015 and 2017, where HSBC Holdings plc (NYSE:HSBC) spent $2.3 billion in its global digital capabilities and $200 million for fintech investments. As of May 7, HSBC Holdings plc (NYSE:HSBC) has a market cap of $129.2 billion and offers a dividend yield of 2.37%.
Established in 1998, Bank of America Corporation (NYSE:BAC) is one of the leaders in online banking. Bank of America Corporation (NYSE:BAC) offers a robotic finance advisor, Erica, to provide proactive insights and guidance to its users. The competitive feature offers a weekly snapshot of users’ month-to-date spending compared to typical expenditure. In the first quarter of 2020, Erica users rose to 12.2 million from 10.3 million in the fourth quarter of 2019.
However, Baird recently downgraded Bank of America (NYSE:BAC) to Neutral, saying that the company’s current stock price already has the good news baked in. The analyst said that Bank of America (NYSE:BAC) stock is currently trading at 10X forward pre-provision net revenue expectations, the highest since the 1997 period of bank boom. The analyst nonetheless praised the bank for strong execution during the pandemic.
As of May 7, Bank of America Corporation (NYSE:BAC) has a market cap of $359.9 billion and offers a dividend yield of 1.74%.
Notable Bank Stocks Investors are Closely Watching
One of the best bank stocks for dividends is Citigroup Inc (NYSE:C). Citigroup Inc. (NYSE:C) has over 200 million customers in over 160 countries. As of May 7, the company has a market cap of $156.0 billion and offers a dividend yield of 2.73%.
Another notable bank stock that pays dividends is Wells Fargo & Company (NYSE:WFC). The company was founded in 1852 and had over 70 million customers. Wells Fargo & Company (NYSE:WFC) shares rose 83% over the last twelve months. The company has a market cap of $193.1 billion and offers a dividend yield of 0.87%. Even though billionaire Warren Buffett’s Berkshire Hathaway unloaded 50% of their stake in the company, the Oracle of Omaha still owns 52.42 million shares of the company, worth $1.6 billion.
Bank holding company PNC Financial Services Group, Inc. (NYSE:PNC) is also one of the best bank dividend stocks. It operates in 21 states and the District of Columbia with over 2,296 branches and 9,051 ATMs. PNC Financial Services Group, Inc. (NYSE:PNC) shares increased 89% over the last twelve months. The company has a market cap of $84.2 billion and offers a dividend yield of 2.36%.
Warren Buffett unloading stakes in bank stocks is a sign of massive changes in the hedge fund industry too. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017. Between March 2017 and February 5th, 2021, our monthly newsletter’s stock picks returned 187.5%, vs. 75.8% for the SPY. Our stock picks outperformed the market by more than 111 percentage points (see details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017, and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
With this context and industry outlook in mind, let’s start our list of 10 best bank stocks for dividends.
Best Bank Stocks for Dividends
10. Western Alliance Bancorporation (NYSE: WAL)
Number of Hedge Fund Holders: 22
Total Value of Hedge Fund Holdings: $112.7 Million
Dividend Yield as of May 7: 0.93%
We start our list of the best bank stocks for dividends with Western Alliance Bancorporation (NYSE:WAL). The company has over $40 billion in assets. It operates full-service business banking in Arizona, California, Nevada. Furthermore, the firm provides advanced financing and financial services to businesses throughout the United States. In February 2021, the company reached a definitive agreement to buy AmeriHome Mortgage Company LLC, a financial services company servicing clients in the United States, for $1 billion in cash.
Western Alliance Bancorporation (NYSE:WAL) currently offers a dividend yield of 0.93% and posted its net income of $506.6 million in 2020. On April 20, Truist Securities maintained a Buy rating on Western Alliance Bancorporation (NYSE:WAL) and raised the price target to $117.
There were 22 hedge funds that reported owning stakes in Western Alliance Bancorporation (NYSE:WAL) at the end of the fourth quarter, down from 28 hedge funds during the third quarter.
9. East West Bancorp, Inc. (NASDAQ: EWBC)
Number of Hedge Fund Holders: 24
Total Value of Hedge Fund Holdings: $403.7 Million
Dividend Yield as of May 7: 1.69%
East West Bancorp, Inc. (NASDAQ:EWBC) ranks 9th on the list of best bank stocks for dividends. The California-based independent bank has over 120 locations in the U.S. and China. On April 29, Morgan Stanley kept its Overweight rating on East West Bancorp, Inc. (NASDAQ:EWBC) and raised its price target to $90 per share.
East West Bancorp, Inc. (NASDAQ:EWBC) revenue in the fourth quarter of 2020 came in at $416.41 million, down from $431.23 million in the same period of 2019. Shares of EWBC surged 124% over the last twelve months.
Like JPMorgan Chase & Co. (NYSE:JPM) and Wells Fargo & Company (NYSE:WFC), EWBC is one of the best bank stocks for dividends.
There were 24 hedge funds that reported owning stakes in East West Bancorp, Inc. (NASDAQ:EWBC) at the end of the fourth quarter, up from 20 funds a quarter earlier. The total value of these stakes at the end of Q4 is $403.7 million.
8. First Horizon Corporation (NYSE: FHN)
Number of Hedge Fund Holders: 30
Total Value of Hedge Fund Holdings: $403.3 Million
Dividend Yield as of May 7: 3.21%
Ranking 8th in our list of the 10 best bank stocks for dividends is First Horizon Corporation (NYSE:FHN), a Tennessee-based bank holding company that has over 250 bank locations across the Southeast. In 2020, the company entered a partnership with Interchecks, a business specializing in simplifying and enhancing payouts, to launch ClearPath Fast Payment. This collaboration will enable instant payment capabilities, allowing quick and easy payments to more available to companies.
First Horizon Corporation (NYSE:FHN) has a market cap of $10.57 billion. First Horizon Corporation’s revenue in 2020 came in at $3.39 billion. Shares of FHN surged 109% over the past twelve months. In April, Morgan Stanley kept First Horizon Corporation (NYSE:FHN) at Equal-Weight and raised the price target to $21.
There were 30 hedge funds that reported owning stakes in First Horizon Corporation (NYSE:FHN) at the end of the fourth quarter. The total value of these stakes at the end of Q4 is $403.3 million.
7. Synchrony Financial (NYSE: SYF)
Number of Hedge Fund Holders: 50
Total Value of Hedge Fund Holdings: $2.46 Billion
Dividend Yield as of May 7: 1.97%
Connecticut-based consumer financial services company Synchrony Financial (NYSE:SYF) ranks 7th on 10 best bank stocks for dividends. The company was founded in 2003 and had over 68.5 million active accounts. In January 2021, the company announced a partnership with Allegro Credit, a company specializing in financing audiology equipment. The acquisition furthers Synchrony’s growth and diversification plan and accelerates its industry-leading digital innovation, giving its suppliers, retailers, and consumers more options at the point of sale.
Synchrony Financial (NYSE:SYF) has a market cap of $26.6 billion. The company’s net earnings in the fourth quarter of 2020 came in at $7 million. Shares of SYF jumped 146% over the last twelve months. In April, Morgan Stanley kept its Overweight rating on Synchrony Financial (NYSE:SYF) and raised its price target to $55 a share.
There were 50 hedge funds that reported owning stakes in Synchrony Financial (NYSE:SYF) at the end of the fourth quarter. The total value of these stakes at the end of Q4 is $2.46 billion.
6. U.S. Bancorp (NYSE: USB)
Number of Hedge Fund Holders: 60
Total Value of Hedge Fund Holdings: $8.13 Billion
Dividend Yield as of May 7: 2.78%
Minnesota-based American bank holding company U.S. Bancorp (NYSE:USB) ranks 6th in our list of the 10 best bank stocks for dividends. U.S. Bancorp offers wealth planning, investments, trusts, and estates, among others. The company has over 15.8 million customers and 3,067 branches.
U.S. Bancorp (NYSE:USB) has a market cap of $91.4 billion. The company’s net revenue in the full year 2020 came in at $23.3 billion. Shares of USB surged 76% over the past twelve months. Morgan Stanley recently kept its Equal-Weight rating on U.S. Bancorp and raised its price target to $60 per share.
Like PNC Financial Services Group, Inc. (NYSE:PNC), Citigroup Inc (NYSE:C), Bank of America (NYSE:BAC) and HSBC Holdings plc (NYSE:HSBC), USB is one of the best bank stocks for dividends.
There were 60 hedge funds that reported owning stakes in U.S. Bancorp (NYSE:USB) at the end of the fourth quarter, up from 48 funds a quarter earlier. The total value of these stakes at the end of Q4 is $8.13 billion.
Mairs & Power mentioned the challenging interest rate climate and credit cycle issues that affected U.S. Bancorp (NYSE:USB) in its Q4 2020 investor letter:
“On the negative side, one of the Fund’s biggest detractor in 2020 was U.S. Bancorp (USB). Like all banks, U.S. Bank was hurt by the difficult interest rate environment and credit cycle concerns. We believe banks are strong enough to survive the current sector doldrums, and they remain some of the market’s most attractive opportunities.”
5. American Express Company (NYSE:AXP)
Number of Hedge Fund Holders: 60
Total Value of Hedge Fund Holdings: $21.8 Billion
Dividend Yield as of May 7: 1.10%
Ranking 5th in our list of the 10 best bank stocks for dividends is American Express Company (NYSE:AXP). The New York-based multinational financial services corporation has over 114 million cardholders. American Express Company (NYSE:AXP) has a market cap of $127.7 billion and total revenue in the full year 2020 of $36.1 billion. In April, Deutsche Bank maintained its Buy rating on American Express Company and raised the price target to $158.
There were 60 hedge funds that reported owning stakes in American Express Company (NYSE:AXP) at the end of the fourth quarter, up from 48 funds a quarter earlier. The total value of these stakes at the end of Q4 is $21.8 billion.
Bretton Fund mentioned that American Express Company (NYSE:AXP) has a reasonably diverse client base overall in its Q4 2020 investor letter:
“American Express has elements of both a bank (it extends credit card loans) and a payments processor (most of its revenue is fees from cardholders and merchants) and was hit pretty hard by Covid-19, though we expect most of the impact will be transitory. It has a relatively diversified customer base overall, but a meaningful portion of its card activity is from business travel, which…there wasn’t a lot of last year. Similar to the banks, American Express recognized loan losses in anticipation of large defaults, though it’s not clear all of that will come to pass. Its stock returned -1.1%, while earnings per share were down 53%.”
4. Goldman Sachs Group, Inc. (NYSE:GS)
Number of Hedge Fund Holders: 76
Total Value of Hedge Fund Holdings: $4.60 Billion
Dividend Yield as of May 7: 1.37%
New York-based multinational investment bank and financial services company Goldman Sachs Group, Inc. (NYSE:GS) ranks 4th in our list of 10 best bank stocks for dividends. The company was founded in 1869 and had over 3 million total customers. On May 14, BMO Capital analyst James Fotheringham upgraded Goldman Sachs to Outperform from Market Perform with a price target of $276. Goldman Sachs Group, Inc. (NYSE:GS) has a market cap of $126.0 billion. The company’s net revenue in 2020 came in at $10.78 billion. Shares of GS increased 100% over the past twelve months.
There were 76 hedge funds that reported owning stakes in Goldman Sachs Group, Inc. (NYSE:GS) at the end of the fourth quarter, up from 70 funds a quarter earlier. The total value of these stakes at the end of Q4 is $4.60 billion.
3. Citigroup, Inc. (NYSE:C)
Number of Hedge Fund Holders: 95
Total Value of Hedge Fund Holdings: $7.12 Billion
Dividend Yield as of May 7: 2.73%
Ranking 3rd in our list of the 10 best bank stocks for dividends is multinational investment bank Citigroup, Inc. (NYSE:C). The New York-based leading global bank has over 200 million customer accounts. On May 7, following an increase in customer demand, Citi announced plans to offer cryptocurrency services such as trading, custody, and finance.
Citigroup, Inc. (NYSE:C) has a market cap of $155.19 billion. In 2020, Citigroup, Inc.’s net income came in at $11.4 billion. Shares of C rose 62% over the past twelve months. In April, Argus Research maintained a Buy rating on Citigroup, Inc. and raised the price target to $87.
There were 95 hedge funds that reported owning stakes in Citigroup, Inc. (NYSE:C) at the end of the fourth quarter, up from 91 funds a quarter earlier. The total value of these stakes at the end of Q4 is $7.12 billion.
Artisan Partners Limited Partnership mentioned they sold their positions in C in its Q4 2020 investor letter:
“We fully exited position in Citigroup. Global financial services company Citigroup made a $900 million clerical error and received a public reprimand from federal regulators. This, after a decade focused on process control, information technology and risk systems, makes the error substantially more costly than just the $900 million mistake. Regulators believe the company’s risk management improvements have fallen short of expectations. To rectify the situation, a process and technology spending surge could negatively affect 2021-2022 profits by 10% to 20%. Trust and confidence are important in large financial institutions, and this incident combined with the CEO’s sudden retirement shook ours.”
Pixabay/Public Domain
2. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders: 99
Total Value of Hedge Fund Holdings: $8.74 Billion
Dividend Yield as of May 7: 0.87%
Ranking 2nd in our list of 10 best bank stocks for dividends is Wells Fargo & Company (NYSE:WFC). The California-based financial services company Wells Fargo & Company was founded in 1852 and has grown its customer base to over 70 million customers.
Wells Fargo & Company (NYSE:WFC) has a market cap of $192.3 billion. Wells Fargo & Company revenue in 2020 came in at $80.3 billion. Shares of WFC jumped 83% over the past twelve months. In March, Morgan Stanley maintained an Overweight rating on Wells Fargo & Company (NYSE:WFC) and raised the price target to $47.
There were 99 hedge funds that reported owning stakes in Wells Fargo & Company at the end of the fourth quarter. The total value of these stakes at the end of Q4 is $8.74 billion.
Davis Funds mentioned that though banks in general have been harmed by the recession and have sustained credit losses, Wells Fargo has also been harmed by operating errors in its Q4 2020 investor letter:
“Detractors to performance relative to the index include financial services holdings such as Wells Fargo. While banks in general have suffered due to the recession and experienced credit losses, Wells Fargo also suffered from operational missteps. It is our expectation, however, that our bank holdings in general will benefit from stronger economic growth as the pandemic recedes; and we believe Wells Fargo in particular, will, over time, lower their costs and successfully grow their businesses.”
1. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 99
Total Value of Hedge Fund Holdings: $35.3 Billion
Dividend Yield as of May 7: 1.74%
Topping the 10 best bank stocks for dividends is Bank of America Corporation (NYSE:BAC). The North Carolina-based multinational investment bank and financial services firm has over 66 million customers. On May 4, Baird analyst David George downgraded BAC from Outperform to Neutral with a price target of $42.00. Bank of America Corporation (NYSE:BAC) has a market cap of $361.45 billion. Bank of America Corporation’s total revenue came in at $93.7 billion in 2020. Shares of BAC surged 78% over the last twelve days.
There were 99 hedge funds that reported owning stakes in Bank of America Corporation (NYSE:BAC) at the end of the fourth quarter, up from 88s funds a quarter earlier. The total value of these stakes at the end of Q4 is $35.3 billion.
GoodHaven Capital Management mentioned that they added positions in BAC in the last six months in its Q4 2020 investor letter:
“Finally, the Federal Reserve has just relaxed share buyback restrictions for Bank of America (and some of their brethren) – a positive development. We added to Bank of America during the last six months. We continue to find plenty of potential new investments to consider, even after the market’s recent material rebound.”
You can also take a peek at 10 Best Travel Stocks to Buy Right Now, and 10 Best Automotive Stocks to Invest in Now.
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Disclosure: None. 10 Best Bank Stocks for Dividends is originally published on Insider Monkey.
