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U.S. banks have come a long way in the five years since the recession they largely created, and are more flush with cash today than any time since then.
Bank profits hit an all-time high in 2013, amassing a combined $155 billion in earnings. That was up 10% from 2012, and $7 billion more than the previous record tally of $148 billion in 2006.
Not all banks are thriving. The FDIC still has 467 U.S. banks on its “problem list.” But that’s little more than half that 888 banks that made the list in 2011 – just three years ago. Clearly, America’s banks are making significant strides.
There is a bit of an asterisk to this bank recovery, however. Much of the profit improvement is due to some banks simply keeping less money in reserve for future lending losses. In fact, according to the FDIC, 20% of bank profits in the fourth quarter were due to that savvy accounting maneuver.
Clever accounting sleight of hand aside, it doesn’t change the fact that some U.S. banks are using their improved cash flow to reward shareholders.
5 Bank Stocks Whose Dividends Really Stand Out
Wells Fargo (NYSE: WFC) and JPMorgan Chase (NYSE: JPM)
Picking two of the six largest banks in America may seem like an obvious choice. But both institutions have earned it with steady dividend growth since 2009.
Wells Fargo – a stock that we bought in our premium $100k Portfolio in March 2012 – has been the most profitable of the big banks the last three years. The company’s dividend growth has followed suit. Since March 2011, Wells Fargo’s dividend payout has increased from 5 cents a share to 30 cents a share. Its current yield is 2.5%.
JPMorgan’s yield and dividend growth are comparable. Despite the disastrous “London Whale” incident in 2012 – in which a rogue London-based trader cost the company more than $62 billion in investment losses – JPMorgan’s dividend payments never slowed, increasing from 5 cents a share in 2011 to 38 cents per share now. Meanwhile, JPM’s yield has risen to 2.6%.
Those yields aren’t spectacular. But the dividend growth has been. And if you want reliable in your bank investments, it makes sense to invest in the two largest banks in America.
People’s United Bank (Nasdaq: PBCT)
New England’s largest regional bank is also one of its highest yielding. People’s offers a healthy 4.5% yield on a $0.1625 quarterly dividend that has been growing since 2005. People’s United is one of the few U.S. banks that managed to weather the recession relatively unscathed. Earnings per share never turned negative in 2008-09, while most other banks were requiring bailouts. Now, People’s is flourishing, with EPS more than tripling since 2010.
PBCT’s share price has lagged a bit, with the stock up just 16% in the last two years. But its consistently high yield has made People’s real return much more appealing to income investors.
Umpqua Holdings (Nasdaq: UMPQ)
Umpqua has a funny name. But its dividend growth is serious.
A small regional bank ($2.1 billion market cap) with roots in the Pacific Northwest, Umpqua has tripled its payout in less than three years. The 15-cent dividend amounts to a solid 3.2% yield.
Umpqua didn’t avoid a recession-era dip the way People’s United did. The company reported EPS of minus-$2.36 in 2009. But Umpqua has bounced back nicely, posting EPS of plus-87 cents last year.
Now that Umpqua’s finances are back on solid footing, its dividend growth has accelerated.
United Bankshares (Nasdaq: UBSI)
Few U.S. banks are more reliable dividend growers than United Bankshares.
Like a slow drip from a faucet, United has upped its dividend by a single penny per share every year but one (2008) since 1998. That type of slow growth isn’t sexy. But it’s effective.
What was an 18-cent dividend in 1998 is now a 32-cent dividend. Meanwhile, United’s yield has risen to 4.2%.
Like People’s, United Bankshares’ stock price hasn’t budged much in recent years. Still, there are reasons to like a bank that has increased its dividend in 14 of the last 15 years.
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