We just entered the thick of earnings season, and several major commercial banks and investment managers have reported strong second-quarter numbers that have lifted the sector. Some regional banks that were hit hard earlier in 2023 after the fear brought on by the failure of Silicon Valley Bank also posted encouraging numbers that won over many on Wall Street.
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The lift is undoubtedly good for shareholders. But many long-term investors gravitate toward banks for the dividend potential — not for the short-term swings in share prices. They want to see capital appreciation, sure, but the bigger appeal is the steady stream of income over time.
If you’re watching the run for the financial sector lately but are mainly interested in bank stocks to buy for the dividends, here are a few options that include noteworthy traditional commercial banks and asset managers:
| Stock | Forward dividend yield as of July 21 |
| Blackstone Inc. (ticker: BX) | 3.7% |
| Citigroup Inc. (C) | 4.3% |
| Ares Management Corp. (ARES) | 3% |
| HSBC Holdings PLC (HSBC) | 5.1% |
| Morgan Stanley (MS) | 3.7% |
| Royal Bank of Canada (RY) | 4% |
| T. Rowe Price Group Inc. (TROW) | 4% |
Momentum Buy: Blackstone Inc. (BX)
A strong performer in the sector — and one of the best large-cap stocks this year — is asset manager Blackstone. The stock notched a total return, which includes dividends, of 47.6% through market close on July 20. With about $1 trillion under management as of the end of June, Blackstone is a powerhouse on Wall Street. And unlike the commercial banks out there, it doesn’t put that capital to use in day-to-day economic tools like car loans or small business lines of credit.
Instead, it performs hedge fund-like services including buyouts and seed capital. And in the “risk on” environment of 2023, business has been booming. That has resulted in not just a strong performance for BX stock, but also fuel for the fire when it comes to BX dividends. And with 2024 average forecasts predicting 36% revenue growth and 39% earnings growth, according to Yahoo Finance, there’s good reason to think BX may build on its success going forward.
Yield: 3.7%
Market Value: Citigroup Inc. (C)
A big bank that has seen better days, Citigroup is down sharply from its 2021 highs and down even farther from its glory days before the 2008-2009 financial crisis. That said, Citigroup may be too big of a bargain to pass up with a forward price-to-earnings ratio of 7.9 and a price-to-book ratio of 0.48. By way of comparison, rival Bank of America Corp. (BAC) trades for 9.3 times earnings and has a price-to-book ratio of 0.99. Metrics for peer Wells Fargo & Co. (WFC) are even higher.
That means Citigroup is a discount compared with its competitors, based in part on past missteps and recent challenges like the spinoff of its Banamex operations in Mexico. But given the uptrend for the sector lately, that may mean this is the time to consider this pick as a turnaround play if you’re willing to think long term, as most dividend investors tend to do.
Yield: 4.3%
These two picks stand out because of their scale and their relative attractiveness as either growth-oriented or value-oriented investments, respectively. But all investors should do their own research and make sure they have the best picks for their personal financial goals.
Here are a few other options if you’re looking at bank stocks to buy for the dividends:
Ares Management Corp. (ARES)
Like Blackstone, Ares operates like a hedge fund or private equity fund by investing its capital in pursuit of big returns. As it makes money, it passes the profits on to shareholders via generous dividends. It held about $360 billion in its portfolio as of the end of March, which includes debt instruments, private equity and real estate investments.
ARES stock has done quite well in 2023, with a total return of 52.1% through July 20. And there’s good reason for that, with projected revenue growth of 31% in 2024. ARES saw a massive increase in payouts from 61 cents per quarter in 2022 to 77 cents this year, which makes distributions 140% higher than the 32 cents it paid quarterly in 2019. That track record is a good vote of confidence for those interested in dividend growth as well as current yield.
Yield: 3%
HSBC Holdings PLC (HSBC)
U.K. bank HSBC has been one of the biggest leaders among major financial stocks this year, with a total return of 38.8% through July 20. That’s on top of its generous dividend yield, too. Like other major enterprises in the sector, it operates a diversified business, including personal and commercial banking, wealth management and capital markets segments — all areas that have been rising. HSBC reports later than some other financial stocks and won’t drop its second-quarter report until August. However, back in May it posted revenue growth of 64% year over year, proving the strength of its business.
Yield: 5.1%
Morgan Stanley (MS)
Investment giant Morgan Stanley is an icon of Wall Street, spun out of JPMorgan in the wake of 1930s regulation that demanded it separate its trading business from its commercial banking operations. Admittedly, this core trading operation has been a bit lackluster at MS lately. However, it recently topped quarterly earnings and sales expectations by a wide margin thanks to a continued focus on a thriving wealth management business. Shares jumped 6.5% in a single session on July 18 as a result.
This trend is not only helping out in the short term, but it is perhaps a better long-term model, as building these relationships with clients and institutions builds a steady and sustainable stream of cash — and dividends, too.
Yield: 3.7%
Royal Bank of Canada (RY)
Another foreign bank with a big reach is the Royal Bank of Canada. Our neighbors to the north rely on natural resources to fuel their economy, and an inflationary environment where commodity prices are rising has been a boon to the miners, oil drillers and loggers of the nation.
Unfortunately, that inflation has also forced aggressive monetary policies, including the central bank raising rates to a 22-year high, with warnings of further potential increases. As the interest rate and inflation picture is a bit more volatile, RY has underperformed most domestic banks in 2023. However, it’s still in the green year to date, and if the interest rate picture becomes less volatile, we may see a similar rally in banks like RY mirroring the U.S. banking industry. In the meantime, investors can harvest a decent yield while they wait.
Yield: 4%
T. Rowe Price Group Inc. (TROW)
With assets under management of $1.4 trillion at the end of June, TROW is one of the biggest fish in the retirement and investment services pond. Unfortunately, that number is still down from its 2021 peak of $1.7 trillion. On the other hand, shares have been roughly cut in half from those prior highs two years ago so the negativity may well be overdone. Not only does this stock have scale and staying power, but it also has an enviable track record of 37 consecutive years where it has raised its annual dividend payout. If you’re a patient, long-term investor then this dividend growth stock could be worth a look.?
Yield: 4%
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7 Bank Stocks to Buy for the Dividends originally appeared on usnews.com
Update 07/21/23: This story was previously published at an earlier date and has been updated with new information.
