Cash In Your CDs And Buy The Bank

Oct. 29, 2012 7:38 AM ETBKJ, CBU, FCCO, FIBK, HARL, CVLY23 Comments
Henry Nyce profile picture
Henry Nyce

Recently a friend stopped at the house to get investment advice. He told me his CDs had come due and was looking for a place to put his money. He had been getting 5% on his CDs but now they were offering a little over 1%. I told him to take his money out of the bank and to buy the bank. I suggested that he could easily get 5% or better annually by buying small regional bank stocks.

Small regional banks offer a great opportunity for dividends and growth during this part of the economic cycle. S&P maintains that the fundamental outlook for regional banks for the next 12 months is positive. Credit quality of the banks continues to improve and charge offs as well as non-performing loans continue to come down. Most regional banks have learned their lesson from the last downturn in the economy and are doing due diligence when they lend out money. As the economy expands and improves we can expect loan growth to grow modestly as well.

When interest rates begin to rise, banks will be able to increase interest on their loans faster than they increase interest payments to their depositors. This enables banks to expand their margins and become more profitable. As they become more profitable, they will be able to increase their dividends. Furthermore, many of these smaller banks were forced to reduce dividend payments during the housing crises to shore up their books. Most of these regional banks have now taken care of their TARP payments and met their capital requirements so they are free to increase their dividends once again.

It is possible to buy some of these banks at or below book value. Since investors are still looking back at the credit problems these banks had during the housing

This article was written by

Henry Nyce profile picture
Have been investing for myself and my family for over 50 years. Retired sociology professor who also started and sold 3 retail stores over my career in teaching. Since I am retired, i am looking for stocks that pay dividends and offer some growth to keep up with inflation.

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