Eight Dividend-Paying Banking Investments to Purchase as Inflation Shields

Eight dividend-paying banking investments to purchase as inflation shields feature some of America’s best-known regional financial institutions.

The eight dividend-paying banking investments to purchase include seven stocks with market values of more than $10 billion and one financial services exchange-traded fund. Even though the dividend-paying regional banks are smaller than the huge money center banks that operate internationally and were featured in one of my recent columns, they should benefit from the same trends.

The eight dividend-paying banking investments to purchase are part of an industry that has been rewarded by investors with strong share price gains so far in 2021. One likely reason for the appeal is that the industry is a traditional refuge during times of rising prices.

The large-cap, dividend-paying regional banking investments to purchase have gained interest from investment industry veteran Jim Woods, leader of the Successful Investing and Intelligence Report newsletters and the Bullseye Stock Trader and Eagle Eye Opener advisory services. Woods wrote to his Intelligence Report subscribers on Oct. 15 that he expects positive third-quarter 2021 earnings results for bank stocks, along with increased interest rates, bond yields and economic growth.

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Eight Dividend-paying Banking Investments to Purchase Collectively Outperform the S&P 500

As a proxy of the banking industry, the Financial Select Sector SPDR Fund (XLF) easily has outpaced the SPDR S&P 500 ETF (SPY) in 2021, Woods noted. Despite SPY jumping 22.39% year to date, XLF has zoomed 37.64%. That rise seems likely to continue not just due to the fundamental reasons cited but bank stocks are gaining as the pandemic wanes, he added.

XLF is designed to correspond generally to the price and yield performance, before expenses, of publicly traded banks that compose the Financial Select Sector Index. The fund’s biggest holdings include large-cap bank stocks, plus Warren Buffett-led Berkshire Hathaway Class B (NYSE: BRK.B). The fund currently has 66 holdings, so it is intended to guard against a heavy concentration in any single stock.

The Successful Investing newsletter that Woods writes follows domestic and international moving averages to provide guidance about when to be in and out of those markets. The Domestic Fund Composite (DFC) is up nearly 5% above its 39-week moving average to stay in “Buy” status, Woods commented. Financial, technology, cyclical and energy stocks all are participating in the recent market rally, Woods wrote to his Successful Investing subscribers.

Paul Dykewicz interviews Jim Woods, the leader of Successful Investing.

Eight Dividend-paying Banking Investments to Purchase Show Merit to Pension Chairman

Bank stocks account for a significant portion of what pension fund chairman Bob Carlson described as a “favorite value stock” investment. Carlson, who heads the Retirement Watch investment newsletter and serves as chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets, said the Oakmark (MUTF: OAKMX) fund uses valuation measures to assess companies in various industries. Those industries include financial services in which large-cap banks currently offer investors value and profits.

Retirement Watch chief Bob Carlson answers questions from Paul Dykewicz.

Investors Can Choose from Among Eight Dividend-paying Banking Investments to Purchase

Financial services account for 33.9% of Oakmark’s holdings and New York-based Citigroup Inc. (NYSE: C) is its fourth-largest position. McLean, Virginia-based Capital One Financial Corp. (NYSE: COF) is the fund’s second-largest holding. Capital One Financial, known mainly for its credit cards and the television commercials, also is a significant mid-Atlantic banking presence from its purchase of a regional bank more than 10 years ago, Carlson said.

When interest rates climb, large-cap banks usually can widen the spreads they earn between what they pay for deposits and what they collect in higher interest rates from borrowers. However, a problem can arise if banks retain too many fixed-rate loans that can lose their luster if interest rates jump.

Bank of America (BofA) wrote a recent research report predicting that the deposits that banks have collected from borrowers since the worst of the pandemic should be retained. Although the deposit mix-shift is likely to move toward interest bearing deposits, banks clearly have more leeway to lag deposit pricing compared to the 2015-18 rate, the report noted. Deposit balances for the industry grew in the middle part of the last decade after the Fed began tapering its post-financial crisis quantitative easing.

Seven of Eight Dividend-paying Banking Investments to Purchase Picked by BofA

While near-term operating/macroeconomic outlooks will affect how stocks trade in the short run, BofA predicted investors increasingly will focus on what banks can earn in a somewhat higher interest rate climate with normalized credit costs. BofA also raised its large-regional earnings per share (EPS) estimate by 1%.

In addition, the BofA report rolled out 2023 and 2024 EPS estimates for its banking coverage universe. The 2024 outlook is intended to give investors a lens into the earnings power for the group, assuming rising interest rates, normalized credit costs, moderating capital markets and mortgage activity, as well as some rebalancing in balance sheet mix after a “historic influx of deposit liquidity.”

Citizens Financial Group Gains Place Among Eight Dividend-paying Banking Investments to Purchase

Providence, Rhode Island-based Citizens Financial Group (NYSE:CFG) received a $55 price target from BofA, which assumed below-peer multiples given the bank’s above average rate sensitivity and lack of options to offset higher credit costs. Risks include slowing economic growth in an adverse credit environment that may lead to interest rate cuts and net income margin (NIM) compression, faster-than-expected deposit repricing and slower-than-expected capital deployment.

Chart courtesy of www.stockcharts.com

Fifth Third Bank Featured with Eight Dividend-paying Banking Investments to Purchase 

Fifth Third Bank (NASDAQ:FITB), of Cincinnati, Ohio, earned a $46 price objective from BofA. The bank’s potential risks that may cause it to miss that mark include a prolonged low interest rate environment, slower-than guided loan growth on weaker economic activity and worsening credit quality.

BofA opined that upside could be achieved beyond its price objective for Fifth Third Bank from a better-than-expected improvement in the macroeconomic environment, stronger-than-anticipated balance sheet growth and enhanced expense management.

Chart courtesy of www.stockcharts.com

First Republic Bank Selected as One of Eight Dividend-paying Banking Investments to Purchase 

San Francisco-based First Republic Bank (NYSE: FRC) received a $240 price objective from BofA.  The valuation beat the average of its peers due to robust balance sheet growth and a strong credit profile, BofA wrote.

Upside from the price target could come from favorable rates, better-than-expected expense management and increased wealth management fees, BofA added. Risks that could cause slippage below the price target include a longer yield curve that would hurt earnings, increased competition that would slow loan growth and a higher level of provisioning for potential loan losses.

Chart courtesy of www.stockcharts.com

Huntington Bancshares Added to Eight Dividend-paying Banking Investments to Purchase

Columbus, Ohio-based Huntington Bancshares (NASDAQ: HBAN) gained a $19 price target from BofA, with higher-than-peer average multiples due to its strong outlook for returns. BofA wrote that prudent risk management and strong deal execution should support the multiples.

Risks to BofA’s price objective include any inability to offset regulatory fee income headwinds, lower-than-expected recognition of synergies associated with its ongoing combination with TCF Financial Corporation (NASDAQ: TCF) and the risk of the TCF deal not fulfilling management expectations. The all-stock merger with a total market value of approximately $22 billion positions the united company as a top 10 U.S. regional bank with dual headquarters in Detroit, Michigan and Columbus, Ohio.

Chart courtesy of www.stockcharts.com

M&T Bank Wins Spot Among Eight Dividend-paying Banking Investments to Purchase 

Buffalo, New York-based M&T Bank (NYSE: MTB) received a $180 price objective from BofA, featuring multiples above its peer banks due to superior historical credit performance. Risks to reaching that price target include moderating commercial real estate, runoff from residential mortgage acquired and attrition from rate-sensitive trust deposits. Potential outperformance could come from a better-than-expected economic recovery, BofA noted.

Chart courtesy of www.stockcharts.com

PNC Financial Group Picked With Eight Dividend-paying Banking Investments to Purchase 

Pittsburgh-based PNC Financial Group (NYSE: PNC) earned a $215 price target from BofA. The investment firm offered above-average-peer multiples given the bank’s prospects to offset higher credit costs and potential upside to deal synergies from its BBVA USA acquisition. Risks to the price target include macroeconomic factors such as a lower-for-longer rate environment, the implementation of a strict liquidity coverage ratio, further regulation on overdraft income that restricts bank profitability and risks associated with the closing of its previously announced acquisition of BBVA USA.

Chart courtesy of www.stockcharts.com

Truist Financial Group Takes Place Among Eight Dividend-paying Banking Investments to Purchase 

BofA set a $74 price target for Truist Financial Group Inc. (NYSE: TFC), a regional bank in Charlotte, North Carolina. The bank gained better multiples than its peers due to its historical credit performance and increased flexibility to manage its balance sheet. Risks to attaining the price objective are macroeconomic and include a double-dip recession, strict liquidity coverage ratio and further regulation on overdraft income that restricts bank profitability. Other risks are enhanced regulatory scrutiny and restrictions on capital distributions, according to BofA.

Chart courtesy of www.stockcharts.com

Improving COVID-19 Case Numbers May Help Eight Dividend-paying Banking Investments to Purchase 

The threat of the highly transmissible Delta variant of COVID-19 seems to be fading a bit in the United States as overall case numbers and deaths dip. Plus, adult population in the United States increasingly is becoming vaccinated. In addition, the U.S. Food and Drug Administration (FDA) recently issued emergency use authorization (EUA) for a single booster shot of the Pfizer-BioNTech COVID-19 vaccine for high-risk groups.

A booster shot of the Pfizer-BioNTech vaccine can be given to people aged 65 years and older at least six months after they receive a second dose of that vaccine to guard against COVID-19. The booster also is approved for those aged 18 years and older who have underlying medical conditions and people aged 18 and older who live or work in high-risk settings.

The Centers for Disease Control and Prevention (CDC) reported on Oct. 22 that 219,900,525 people, or 66.2% of the U.S. population, have received at least one dose of a COVID-19 vaccine. The fully vaccinated total 190,179,553 people, or 57.3%, of the U.S. population, according to the CDC.

COVID-19 cases worldwide totaled 242,905,296 cases and led to 4,936,832 deaths, as of Oct. 22, according to Johns Hopkins University. U.S. COVID-19 cases hit 45,377,802 and caused 735,150 deaths. America has the dreaded distinction as the country with the most COVID-19 cases and deaths.

The eight dividend-paying banking investments to purchase offer an opportunity to profit from their standout performance compared to the S&P 500.