In light of the big bank bailouts of the past several years, many still believe that the larger financial institutions are more focused on lining CEOs' pockets, while customers continue to pay outrageous account fees and get little in return in terms of interest and growth on their deposited funds.
Yet, for investors, the story here could be quite different, as there are some banks, both large and small, that may definitely be worth a second look. This is especially the case when considering some of the regional banking entities such as U.S. Bancorp (USB). In this article, I will discuss why U.S. Bancorp, given its steady growth, solid dividend, and positive future prospects may be a great addition to investors' portfolios, even with the recent volatility in today's market.
Going with Smaller Players Could Pay Big for Investors
U.S. Bancorp, the parent company of U.S. Bank, may be considered small when compared to some of the other big banking entities in the market today. This financial institution has a market cap of approximately $63 billion, and it recorded record earnings per share in the second quarter 2012 of over 18%.
In addition, the bank also brought in higher revenue during this quarter - as compared to the same quarter in 2011 - of roughly 6%, giving it expanded profit margins and leading to a share price increase that was in excess of 40% over the past year.
Investors have been seeing a dividend yield of roughly 2.8% with U.S. Bancorp, and with a P/E ratio of just below 12, U.S. Bancorp's share price is estimated to rise by nearly 11.5% over the next 12 months - offering investors a nice amount of both income and growth over the short- and long-run. Therefore, given its solid past performance, along with its expected positive forward momentum for the future, analysts have reiterated a Buy recommendation for the shares, and I completely agree.
How the Bigger Banks are Faring
Even with the good news for smaller regional institutions like U.S. Bancorp, there are still a few of the bigger financial powerhouses that may also pay nicely to their shareholders. One such institution is Wells Fargo (WFC). With its market capitalization of approximately $178 billion, Wells Fargo is considered to be the biggest of the big in the banking industry - and it may be expanding even further with its consideration of the purchase of CIT Group. If this purchase were to take place, Wells Fargo would acquire approximately $35 billion in additional assets, and a nice addition of cash on hand as well.
Currently, investors in Wells Fargo shares receive a dividend of approximately 0.88 per share, equating to an annual dividend yield of 2.6%. Over the next 12 months, share price of this big bank is estimated to rise more than 16% - so here again, the prospects for future income and growth appear to be quite positive for Wells Fargo shareholders.
Another of the bigger banking institutions is Citigroup (C). Citigroup's market cap of just under $110 billion puts it in the upper echelon in terms of big bank size. Citigroup holds approximately $2 billion in consolidated assets, and has achieved a so-so 2% income growth over the past 12 months.
One downfall for this big financial giant is the fines it has been slapped with for violating trading of commodities contracts. As the firm exceeded speculative trading limits, it was held accountable with a financial punishment - yet, with a cash flow of over $40 million for the year 2011, this bank doesn't seem to have been hurt too badly. And, although investors only receive a dividend yield of approximately 0.10%, this institution's share price is estimated to rise by close to 15%, making Citi a nice addition for investors who are seeking growth.
JPMorgan Chase (JPM) is another bank that can be considered in the top five as far as size. It has a market cap just above $160 billion, while holding consolidated assets of roughly $2.15 billion. The bank is currently trying to expand into prime broking with the providing of hedge funds and related services like stock lending, financing, and the clearing of trades, and it presently ranks just behind Goldman Sachs and Credit Suisse as the largest supplier of prime brokerage services. Shareholders of JPMorgan receive a dividend yield of 2.8%, and the firm's shares are estimated to rise over 11% over the next year.
With the good news sprinkled throughout the banking sector, one financial giant that isn't doing well - at least as compared to its competitors - is Bank of America (BAC). Even though this bank had return on equity of just under 5% for the second quarter 2012 - along with a profit margin in excess of 11% - Bank of America still performed well behind others financially in the banking industry. In addition to somewhat disappointing numbers, Bank of America plans to lay off roughly 30,000 of its workforce over the coming months in order to become more "lean and efficient." Currently, Bank of America shareholders are only receiving a dividend yield of 0.40%, and the bank's shares are only expected to rise by approximately 3% over the following 12 months.
The Bottom Line
While there are several of the bigger banking institutions that make for great growth and income vehicles, I feel that looking towards smaller regional banks can also give investors the positives that they are looking for in a banking industry stock. With U.S. Bancorp's 40% share price increase over one year ago, some may shy away, feeling that the shares do not offer as much value.
However, analysts continue to place a buy rating on U.S. Bancorp due to its higher revenue and expanded profit margins - and I fully agree. With a steady and solid dividend of 2.30%, and an anticipated share price increase of nearly 12% over the next 12 months, I think that investors will do quite well with U.S. Bancorp.