Stronger banks are paying attractive dividends. Compared with the financial crisis 10 years ago, investors are having a relatively easy time of it. With each passing year, major indices like the S&P 500 are pushing…
Stronger banks are paying attractive dividends.
Compared with the financial crisis 10 years ago, investors are having a relatively easy time of it. With each passing year, major indices like the S&P 500 are pushing higher and consumer spending metrics look better. As bad mortgages cascaded through the system in 2008 and 2009, some financial institutions were forced to fold and others slashed dividends to survive. Now, the healthier banks have absorbed troubled ones and in many cases are dishing out bigger dividends than ever before. That makes it a great time to consider the financial sector for dividend income. Here are nine banks worth a look.
One of the strongest banks in America, JPMorgan was stable enough to take on the wreckage of investment giant Bear Stearns and retail bank Washington Mutual during the depths of the 2008 financial crisis. Those bold moves really paid off, as the bank is now the largest U.S. bank by both market capitalization and total assets. Though the Federal Reserve mandated JPM cut its payout from 38 cents quarterly to just 5 cents in 2009, it was back to 38 cents by 2013 and now is 80 cents quarterly based on its most recent distribution. That’s a testament to this bank’s current strength.
JPM wasn’t alone in making shrewd moves to consolidate power over the last decade as the weaker hands were forced out of the financial sector. Wells Fargo is the No. 2 American bank by assets, and after an aggressive re-entry in the mortgage market, it was at one time originating almost 40 percent of all mortgages. Things have been a bit more difficult lately given unflattering headlines in recent years about opening fake accounts in customer names. However, most of the negativity is behind the stock and it still has the scale to pay significant and growing dividends to shareholders.
Switzerland’s UBS Group is a $50 billion powerhouse in Europe founded over 150 years ago. It offers private banking services but has a rich history of investment services thanks to managing the wealth of some of the richest families in the world — counting half the world’s billionaires as its clients. UBS has historically provided one of the best returns on its investment business among peers. It also is in historically neutral territory as a Swiss bank, and allows more privacy and flexibility for depositors. That balance sheet stability makes UBS a rock-solid investment, and fuels consistent and generous dividends.
Across the channel from continental Europe, the U.K.’s HSBC Holdings is another international dividend stock that’s worth a look. Though headquartered in London, the multinational bank has operations around the world and is among the top 10 financial institutions on the planet with offices in almost 70 countries and about 38 million customers. HSBC is also diversified in its operations, offering wealth management, commercial and private banking services. This allows for a stable flow of cash that powers a stable and reliable dividend for shareholders.
This regional bank offers one of the best dividend payouts among American financials and is a roughly $15 billion outfit mainly serving the Midwest. While there are advantages to being a big bank, smaller banks have unique qualities that can make regional players like HBAN an important addition to a portfolio. Generally these banks are more connected to actual lending and less speculative with their operations, and they also have the benefit of avoiding some of the more onerous oversight that has fallen on much larger institutions. In certain cases, that may mean smaller banks are actually a bit less risky.
Still classified a regional bank, USB is several times larger than many of the community banks in this grouping. U.S. Bancorp ranks at nearly $90 billion in total market capitalization, and by some measures is only a half-step down from the big mega-banks in terms of assets and customers and scale. That makes USB a kind of “Goldilocks” investment that is not too big to be risky and in the crosshairs of regulators, but not too small that it is wholly reliant on a small community of customers. It also allows for the kind of revenue necessary to deliver consistent dividends.
While regional banks lean more toward mortgages and commercial loans, there is plenty of money to be made from stocks focused on investment banking. BlackRock falls into this camp, with its iShares family of exchange-traded funds among the gold standard. Blackrock also has its own hedge fund operations and other proprietary investment schemes, and shareholders see their investment rise and fall in kind. They also get a nice dividend through the regular return on investments that BlackRock enjoys.
Morgan Stanley is another investment banking powerhouse, with offices in more than 40 countries and market capitalization of almost $80 billion. While it doesn’t have the ETF footprint of BlackRock, it does have a powerful brand and deep connections to Wall Street. MS was the major underwriter for the record-breaking IPO of Facebook (FB) in 2012. This high level of expertise makes Morgan Stanley a go-to partner for investment deals, and ensures a steady flow of revenue in from a variety of investment services. That dividend has actually doubled in just three years, from 15 cents a quarter in 2016 to 30 cents currently.
Discover is not a traditional banking stock, but increasingly is playing in the traditional bank sandbox. A factor in Discover’s recent growth comes from going beyond is flagship credit card line and into consumer lending operations. Cardholders know Discover made a name for itself by stressing generous rewards. DFS stock does the same thing by passing along a cut of its profits in the form of reliable dividends — and dividends that are growing, too, doubling in five years from 20 cents in 2013 to 40 cents presently.