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number cruncher

What are we looking for?

U.S. banks have not fully participated in the recent market rally when compared with the S&P 500, and many are trading well below their one-year highs. They offer investors good dividends and attractive valuations, some of the cornerstones of our investment philosophy based on safety and value. Today, my team member Allan Meyer and I take a closer look at U.S. bank stocks, with the important caveat that this sector is not immune to the economic impact of the pandemic.

The screen

We started our search by filtering for banks in the S&P 500. Then we looked at market capitalization; the list is sorted from largest to smallest on this measure. It is a safety factor as larger companies tend to have more stable and diverse revenue streams and offer more trading liquidity. Dividend yield is the annualized projected dividend divided by the recent share price. Dividends can reflect safer and steady earnings profiles. Debt-to-equity is our final safety factor – it is the total debt outstanding divided by shareholders’ equity. A smaller number indicates lower leverage and as we like to say, it’s hard to go bankrupt if you have little or no debt.

Price-to-earnings is the recent share price divided by the projected earnings per share. It is a valuation metric – the lower the number, the better the value. Earnings momentum is the change in annualized earnings over the past quarter. A positive number implies earnings are growing while the opposite is true for a negative number. Positive earnings momentum over the long term should translate to share price gains and perhaps dividend hikes. Price-to-book compares the recent share price to the book or equity value per share. This is a value measure, a lower number is preferred.

We’ve calculated the average and median for all metrics to allow for better comparability and we also provided the 52-week total return to track performance.

What we found

Despite being the smallest by market cap, People’s United Financial Inc. is the only name with positive earnings momentum and scores well across the board for safety and value. Citizens Financial Group Inc. is the most attractive in terms of value and scores well on most measures. Wells Fargo & Co. offers investors the highest dividend yield, but there are rumours a cut may be coming. Indeed, those seeking safety and value should note a dividend cut could occur with any of the names shown, given the impact of COVID-19.

It is interesting to note that First Republic Bank is the only name that provided investors a positive total return over the past year, but also has the most expensive valuations.

BMO Equal Weight U.S. Banks Hedged to CAD Index ETF (ZUB) is an option for investors who like the sector but prefer to diversify away individual security and currency risk.

Investors should contact an investment professional or conduct further research before buying any of the securities listed here.

Select S&P 500 bank stocks

CompanyTickerMkt. Cap. (US$ Bil.)Div. Yld. (%)Debt/Eqty. (%)P/EEarns. Momtm. (%)P/B52W Ttl. Rtn. (%)Recent Price (US$)
JPMorgan Chase & Co.JPM-N282.33.9197.514.9-18.01.1-15.592.66
Bank of America Corp.BAC-N202.13.1161.512.5-12.30.8-18.423.29
Citigroup Inc.C-N105.24.0226.210.8-10.50.5-26.950.55
Wells Fargo & Co.WFC-N103.98.1177.814.8-23.60.6-44.225.34
U.S. BancorpUSB-N54.14.7120.613.6-6.51.0-30.635.89
PNC Financial Svcs. Grp.PNC-N43.34.589.115.7-5.80.9-25.2102.15
First Republic BankFRC-N17.90.812.920.8-1.21.75.2104.62
Fifth Third BancorpFITB-Q13.25.873.610.7-18.10.6-31.318.57
M&T Bank Corp.MTB-N12.94.444.810.9-10.10.8-40.3100.59
KeyCorpKEY-N11.46.379.511.9-15.90.7-31.811.71
SVB Financial GroupSIVB-Q10.70.05.614.9-13.31.5-6.5208.34
Regions Financial CorpRF-N10.25.833.010.9-15.10.6-27.310.60
Citizens Financial GroupCFG-N10.16.664.510.3-23.30.5-30.623.76
Huntington BancsharesHBAN-Q8.77.092.812.8-22.80.7-34.98.60
Zions BancorporationZION-Q5.34.251.412.7-24.00.7-27.432.41
Comerica Inc.CMA-N4.97.748.315.0-32.70.7-48.935.27
People's United Fin'lPBCT-Q4.76.438.110.52.20.6-31.111.18
Average53.04.989.213.2-14.80.8-27.4
Median12.94.773.612.7-15.10.7-30.6

Source: Eikon & Wickham Investment Counsel Inc.

Sean Pugliese, CFA, is an investment portfolio manager at Wickham Investment Counsel, helping individuals, families and other investors.

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