As many investors remain skeptical about banks, there is a silver lining for those seeking attractive yields. While the S&P 500 offers a modest dividend yield of 1.5%, the SPDR S&P Bank ETF (ticker: KBE) boasts a generous yield of 3.3%, with individual bank stocks offering even higher yields. What’s more, these dividends appear to be in good health, as several banks are anticipated to drive earnings growth despite industry challenges.
The superregional banks, comprising institutions with assets exceeding $50 billion, stand out for offering the highest dividend yields on average. According to analysts at Piper Sandler, the median yield for this group sits at an impressive 4.8%, even with an anticipated 4.7% year-over-year decrease in earnings. However, among these 25 banks, four banks manage to strike a balance by delivering both earnings growth and yields exceeding the group’s median: Columbia Banking System (COLB), KeyCorp (KEY), U.S. Bancorp (USB), and Valley National Bancorp (VLY).
For those exploring additional options, Capital One Financial (COF), Popular (BPOP), Webster Financial (WBS), and Western Alliance Bancorp (WAL) are worth considering. Although these banks are forecasted to see positive earnings growth, their yields range from 2.4% to 3.9%, which might be slightly less enticing.
Challenging Times for Bank Stocks
It is no secret that the past year has been a challenging one for bank stocks. While the S&P 500 experienced a 17% gain, the super regionals saw their stocks fall by an average of 20%. This disparity can be attributed to the collapse of three major lenders and the anticipation of higher funding costs due to rising interest rates and tighter regulation.
Finding Opportunity in the Face of Challenges
Despite these ongoing challenges, focusing on banks that have managed to maintain or even grow their payouts while also increasing earnings can be a wise investment strategy. However, it’s important to keep in mind that a simple screen is just a starting point for analysis when making investment decisions.
Factors Affecting Performance
There are other factors that could potentially impact performance within the banking sector. For example, Capital One has a significantly higher percentage of net-charge offs to average loans compared to its peers, standing at 2.82% versus the group median of 0.24%. This discrepancy is reflective of Capital One’s specialization in credit cards.
Steadying the Ship
Another bank that experienced a particularly volatile period this spring was Western Alliance. In May, shares tumbled by 70% as concerns grew over potential deposit flight. However, the bank has since bolstered its balance sheet and has witnessed an increase in deposits.
The Allure of High Dividends
Although it may be difficult to view banks favorably amidst these challenges, the prospect of high dividends certainly makes them more appealing.
