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What are we looking for?

My colleague Allan Meyer and I thought we would take a closer look at U.S. banks using our investment philosophy focused on safety and value.

The screen

We started our search by filtering for banks in the S&P 500 index. Then we looked at market capitalization (the list is sorted from largest to smallest on this measure). We view market cap as a safety factor as larger companies tend to have more stable and diverse revenue streams. Their shares also tend to be more liquid.

Dividend yield is the annualized projected dividend divided by the recent share price. Dividends generally reflect safer and steady earnings profiles and, of course, we like to get paid while we wait for capital appreciation.

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Then we looked at debt-to-equity as a safety factor. It is the total debt outstanding divided by shareholders' equity. A smaller number indicates lower leverage and anything less than 100 implies a company has enough equity to pay its debt obligations.

Price-to-earnings is the share price divided by the projected earnings a 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 even dividend hikes.

The price-to-book ratio compares the recent share price with the book or equity value for each 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

People’s United Financial Inc. is the smallest by size but highest yielding name on the list and it scores well on most safety and value metrics. SunTrust Banks Inc. and Regions Financial Corp. also look good from a safety and value standpoint. Citigroup Inc. appears to be a large-cap value play, but it also has the most debt. The larger banks tend to have higher debt levels. SVB Financial Group has the strongest earnings momentum, but investors do not “get paid while they wait” as it is the only name on the list that doesn’t pay a dividend. It is also one of the most expensive from a valuation perspective.

It is interesting to note that the whole sector has positive earnings momentum, which could foreshadow future dividend hikes and share price appreciation among the group if the trend remains intact.

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BMO Equal Weight U.S. Banks Hedged to CAD Index ETF (ZUB) is a Canadian currency-hedged exchange-traded fund 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 below.

S&P 500 bank stocks

Company Ticker Recent Price (US$) Mkt. Cap. (US$ Bil.) Div. Yield (%) Debt/Equity (%) P/E Earns. Momentum (%) P/B 52W Total Rtn. (%)
JPMorgan Chase & Co. JPM-N 103.42 352.4 3.1 193.5 11.0 7.2 1.3 3.9
Bank of America Corp. BAC-N 26.39 260.2 2.3 161.6 9.4 8.6 1.0 -3.4
Wells Fargo & Co. WFC-N 51.25 241.5 3.4 158.6 10.3 2.9 1.2 -5.7
Citigroup Inc. C-N 64.21 158.7 2.8 196.4 8.6 5.2 0.8 -11.4
U.S. Bancorp USB-N 50.91 82.9 2.9 99.7 11.8 4.8 1.7 -4.2
PNC Financial Services Grp. PNC-N 119.45 55.5 3.2 80.1 10.5 6.9 1.2 -11.4
BB&T Corp. BBT-N 46.48 35.8 3.5 88.1 10.8 7.7 1.2 -1.8
SunTrust Banks Inc. STI-N 59.56 27.4 3.4 57.9 10.2 7.3 1.1 0.7
M&T Bank Corp. MTB-N 158.53 22.8 2.5 51.2 11.5 11.9 1.5 -3.8
KeyCorp KEY-N 17.06 18.0 4.0 102.1 9.2 8.8 1.2 -4.8
Regions Financial Corp. RF-N 16.06 17.7 3.5 27.7 10.2 9.4 1.1 4.4
Fifth Third Bancorp. FITB-Q 25.86 17.2 2.8 95.3 9.6 7.5 1.1 -9.0
Citizens Financial Group Inc. CFG-N 35.86 17.0 3.0 71.2 15.6 8.2 0.8 -4.7
Huntington Bancshares Inc. HBAN-Q 13.61 14.4 4.1 131.9 10.0 9.3 1.3 0.6
Comerica Inc. CMA-N 78.81 13.7 3.0 58.2 10.0 11.6 1.7 0.4
SVB Financial Group SIVB-Q 231.79 12.3 0.0 24.6 13.1 16.7 2.5 7.0
Zions Bancorp ZION-Q 46.56 9.1 2.6 69.8 11.2 9.1 1.2 0.5
People's United Fin'l Inc. PBCT-Q 15.19 5.8 4.6 38.3 10.8 5.9 0.9 -16.7
Average 75.7 3.0 94.8 10.8 8.3 1.3 -3.3
Median 20.4 3.1 84.1 10.4 8.0 1.2 -3.6

Source: Thomson Reuters, 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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