The banking industry seems well-capitalized to gain from a higher interest rate regime. The minutes from the last FOMC meeting underscored the central bank’s resolve to keep the interest rates high till inflation numbers cool down reasonably. The Federal Reserve officials noted that they would be required to maintain a “restrictive policy stance” until data gave proper indications of inflation pressures easing.
Thus, banks are expected to keep benefiting from higher rates. The Fed raised the rates to a 15-year high range of 4.25-4.50% since March 2022. This immensely supported banks’ net interest income (NII) and resulted in an expansion of net interest margin (NIM). But as the rates remain higher, loan demand is expected to gradually falter. Also, due to this ultra-hawkish monetary policy stance, the U.S. economy is likely to slow down considerably and may even face a “mild” recession in the near term.
Hence, investors must be cautious while picking bank stocks. Given such a grim scenario, decent dividend-paying stocks should be on investor radar. So, we picked five banks – Citigroup C, Truist Financial TFC, U.S. Bancorp USB, Huntington Bancshares HBAN and Citizens Financial Group CFG – that are part of the S&P 500 Index and have been regularly paying dividends.
To choose these banks, we ran the Zacks Stocks Screener to find stocks with a dividend yield in excess of 4% and a five-year historical dividend growth of more than 5%. Also, these stocks currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s now discuss the above-mentioned five bank stocks in detail:
Headquartered in New York, Citigroup is a globally diversified financial services holding company providing a range of financial products and services. The company, which is among the top four U.S. banks, has around 200 million customer accounts across 160 countries and jurisdictions.
A diverse business model, focus on core operations and streamlining of international consumer businesses will continue to drive the company’s growth. C continues to optimize its branch network, with a focus on core urban markets and improving digital channels. It is also making efforts to simplify operations and reduce costs. All these initiatives will likely help augment its profitability and efficiency over the long term.
The stock has a dividend yield of 4.34% and a five-year annualized dividend growth of 9.04%. Further, C’s payout ratio is 26% of earnings at present. Check Citigroup’s dividend history here.
Citigroup Inc. Dividend Yield (TTM)
Citigroup Inc. dividend-yield-ttm | Citigroup Inc. Quote
Truist Financial, formed following the ‘merger of equals’ deal between BB&T Corp and SunTrust Banks, is the sixth largest commercial bank in the United States. Headquartered in Charlotte, NC, the company offers a variety of services to consumers and commercial clients through 2,119 banking offices and 3,185 automated telling machines (ATMs).
Steady loan growth, higher interest rates and Truist Financial’s efforts to improve fee income will likely keep aiding financials. The company has been undertaking strategic acquisitions to further its support fee income growth. Over the past couple of years, it acquired BankDirect Capital Finance, BenefitMall, Kensington Vanguard National Land Services and Constellation Affiliated Partners to bolster the insurance business. Given its ample liquidity, TFC is less likely to default on interest and debt repayments, even if the economic situation worsens.
The company has a dividend yield of 4.64% and a five-year annualized dividend growth of 7.64%. Currently, TFC’s payout ratio is 41% of earnings. Check Truist Financial’s dividend history here.
Truist Financial Corporation Dividend Yield (TTM)
Truist Financial Corporation dividend-yield-ttm | Truist Financial Corporation Quote
U.S. Bancorp, headquartered in Minneapolis, MN, provides banking and investment services principally operating in the Midwest and West regions of the United States. A solid business model and diverse revenue streams are likely to aid its financials.
USB’s strong loan and deposit balances are major positives in the rising interest rate environment. With the acquisition of MUFG Union Bank in December 2022, the company fortified its presence in California, Washington and Oregon and bolstered its status as the fifth-largest retail bank in the United States. Further, U.S. Bancorp is undertaking a number of opportunistic buyouts, which have strengthened its fee income sources. These have also enhanced U.S. Bancorp’s range of products, services and capabilities as well as improved market share.
The company has a dividend yield of 4.17% and a five-year annualized dividend growth of 9.4%. Also, USB’s payout ratio is 44% of earnings at present. Check U.S. Bancorp’s dividend history here.
U.S. Bancorp Dividend Yield (TTM)
U.S. Bancorp dividend-yield-ttm | U.S. Bancorp Quote
Huntington Bancshares is a Columbus, OH-based multi-state diversified regional bank holding company. HBAN operates through four business segments – Consumer and Business Banking, Commercial Banking, Vehicle Finance and Regional Banking and The Huntington Private Client Group.
Decent economic growth and a strong lending pipeline are expected to drive loan growth, thereby aiding the company’s NII. Over the past few years, Huntington Bancshares has expanded its footprint and capabilities in a number of verticals through acquisitions. Such inorganic expansion efforts help the company to gain significant market share and enhance its profitability over the long run. Further, the company’s credit quality continues normalizing, supported by a favorable economic outlook.
This bank has a dividend yield of 4.32% and a five-year annualized dividend growth of 6.42%. At present, HBAN’s payout ratio is 43% of earnings. Check Huntington Bancshares’ dividend history here.
Huntington Bancshares Incorporated Dividend Yield (TTM)
Huntington Bancshares Incorporated dividend-yield-ttm | Huntington Bancshares Incorporated Quote
Based in Providence, RI, Citizens Financial is one of the largest retail bank holding companies in the United States. CFG operates roughly 1200 branches and around 3,300 ATMs in 14 states and the District of Columbia.
Robust loans and deposit balances, and higher interest rates will keep aiding NII and NIM. Citizens Financial’s focus on executing a series of revenue and efficiency initiatives led to the introduction of “Tapping Our Potential” (TOP) program in late 2014. It remains on track to realize substantial benefits through the TOP 7 Program this year. The bank is well poised to grow via acquisitions, reflected in its accomplishment of several major buyouts in the last several years. These efforts enable the company to expand its product capabilities and geographic reach.
The company has a dividend yield of 4.13% and a five-year annualized dividend growth of 15.2%. Further, CFG’s payout ratio is 35% of earnings at present. Check Citizens Financial’s dividend history here.
Citizens Financial Group, Inc. Dividend Yield (TTM)
Citizens Financial Group, Inc. dividend-yield-ttm | Citizens Financial Group, Inc. Quote
As the macroeconomic conditions are turning dismal, investors become interested in dividends for a number of reasons. These greatly improve stock investing profits, lower overall portfolio risk and carry tax advantages, among others. But investors must be careful as choosing stocks just based on higher yields is not a good idea. They must also take into account company fundamentals to find compelling investment opportunities.
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