Three dividend-paying regional bank investments to buy offer paths to profitability from traditional financial services.
With a normalized yield curve now in play, Citi Research recently wrote that it sees the next two years as ripe for regional banks to profit, especially with elevated capital ratios that support both outsized loan growth trends and buyback opportunities. Pre-provision net revenue (PPNR) outlooks for regional bank coverage suggest a return to growth, driven by improved net interest margins (NIM), fee income and disciplined expense management, Citi Research continued.
“While this setup is universal for all banks, given the discounted comparative valuation starting point, we continue to see outsized valuation expansion opportunity across the regional bank space,” Citi Research wrote.
Three Dividend-paying Regional Bank Investments to Buy: KRE
Dividend-paying State Street SPDR S&P Regional Banking ETF (NYSEARCA: KRE) is a recommendation in the Forecasts & Strategies investment newsletter led by Jim Woods. He put the exchange-traded fund (ETF) in the newsletter’s “Tactical Trends” portfolio. Recommended in November 2023, KRE has produced a return of 79.44% and currently pays a dividend yield of 2.13%.
Woods told me that mid-sized banks should do well as lenders for businesses during the coming months, and maybe even years, too. The business of lending to good quality risks should weather financial storms, he added.
The regional banking ETF seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the S&P Regional Banks Select Industry Index. Membership in the Select Industry Indices is based on the GICS classification, as well as liquidity and market cap requirements.
The fund tries to track a modified equal weighted index, which provides the potential for unconcentrated industry exposure across large-, mid- and small-cap stocks. The ETF also allows investors to take strategic or tactical positions at a more targeted level than traditional sector based investing.
Chart courtesy of www.stockcharts.com.
Three Dividend-paying Regional Bank Investments to Buy: RRBI
A regional bank that Woods is recommending is Red River Bancshares Inc. (NASDAQ: RRBI), headquartered in Alexandria, Louisiana. When looking at a recent Five Star Trader screen, Woods said the bank’s name jumped out him immediately, but not for purely investment reasons. The regional bank, with a dividend yield of about 1%, made the cut due to outstanding fundamentals, with robust earnings-per-share (EPS) growth of nearly 30%, consistent dividend increases, a very attractive price-to-earnings (P/E) ratio of 14 and net profit margins of 34%.
But the name “Red River” brought back memories of his youth, Woods said, recalling his father playing country music records. The song “Red River Valley” by Marty Robbins was one of the family’s favorites, added Woods, who acknowledged loving the imagery the name induced in his mind.
“Fast-forward multiple decades, and even just the name Red River evoked a Proustian childhood sense memory that made my heart swell,” Woods commented. “But of course, that’s not a good reason to own a stock. What are very good reasons are the aforementioned fundamentals, and the latest bullish technical pattern in the stock that’s now formed.”
Look at the RRBI chart below, with the stock forming a bullish “cup-with-handle” pattern, Woods suggested. Notice that the cup begins in May and lasts through late June, Woods pointed out.
Chart courtesy of www.stockcharts.com.
Three Dividend-paying Regional Bank Investments to Buy: FHN
First Horizon Corp. (NYSE: FHN), a Memphis, Tennessee regional bank with a 2.64% dividend yield, is rated a Citi Research buy. The bank reported second-quarter earnings per share (EPS) on July 15 of $0.54, above consensus expectations of $0.52.
The bank’s loan growth was a little better than expected. But net interest income (NII), a core profitability metric that measures the difference between the revenue a bank generates from interest-bearing assets such as loans and mortgages, as well as the interest expenses it pays out for liabilities such as customer deposits, were weaker than expected, Citi Research wrote.
On a positive note, Generally Accepted Accounting Principles’ (GAAP) fee income at First Horizon was modestly better than expected, but upside was largely driven by $15 million in deferred compensation income, Citi Research wrote. The bank operates in 12 southern states, with its subsidiaries combining to offer commercial and private banking, consumer, small business, wealth and trust management, retail brokerage, capital markets, fixed income and mortgage services.
Citi Research set a $28.50 target price for FHN that is derived from the investment bank’s discounted residual income model, which values an enterprise based on its discounted excess returns over its cost of equity. However, FHN is high risk based upon its quantitative model, Citi Research added.
Recent volatility in the share price of FHN is largely due to the unexpected deal termination in May 2023 with TD Bank Group (NYSE: TD). With FHN’s strong and well-positioned balance sheet, the share-price volatility should continue trending down, Citi Research continued.
Under the termination agreement, TD paid First Horizon $225 million in cash, causing the cancellation to become the largest termination in U.S. banking history at the time. Uncertainty about when and if regulatory approvals could be obtained led both sides to mutually agree to terminate the merger agreement.
Chart courtesy of www.stockcharts.com.
Three Dividend-paying Regional Bank Investments to Buy: Partnering
Most people that have amassed a substantial net worth have done so by partnering with banks, wrote David Phillips, who heads the Generational Wealth Strategies newsletter.
Consider the following, he advised:
- Most college students utilize student loans to obtain their degree.
- Most young professionals borrow money for their first car.
- Nearly everyone uses credit cards to pay everyday expenses.
- Pretty much everyone purchasing a home utilizes a mortgage from a bank.
- Virtually every business owner partners with a bank to purchase businesses.
- Most business owners work with a bank to purchase their business property.
Three Dividend-paying Regional Bank Investments to Buy: Geopolitics
With military action taking place in multiple places in the world and global geopolitical risk still a big concern, these three investments offer a potentially profitable path forward to receive income and share-price appreciation amid the chaos.
Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is the editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. Follow Paul on Twitter @PaulDykewicz.
