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Tags: bank dividend stocks | pnc | u.s. bancorp | community trust
OPINION

Bob Ciura: 3 Regional Bank Stocks With Attractive Dividends

Bob Ciura: 3 Regional Bank Stocks With Attractive Dividends
(AP)

Bob Ciura By Friday, 24 March 2023 02:33 PM EDT Current | Bio | Archive

The collapse of Silicon Valley Bank on March 10th has sent shockwaves through the banking system, and in particular regional banks. Share prices across regional banks have declined significantly since the fallout of the SVB failure.

However, there are still attractive regional banks with dividend yields above 4%, and strong business models. These 3 regional banks have attractive yields and safe dividends.

PNC Financial (PNC)

PNC Financial Services is one of the largest diversified financial services companies in the U.S. It is engaged in retail banking as well as corporate and institutional banking and asset management. Its retail network is located primarily in markets across the Mid-Atlantic, Midwest and Southeast.

In mid-January, PNC reported (1/18/23) financial results for the fourth quarter of fiscal 2022. Net interest income grew 6% sequentially thanks to higher interest rates and higher loan balances. Net interest margin expanded from 2.82% to 2.92% thanks to higher interest rates. Non-interest income remained essentially flat.

Despite the tailwind from high interest rates, PNC posted an -8% decrease in its earnings per share sequentially, from $3.78 to $3.49, and missed the analysts’ consensus by $0.47 due to higher provisions for loan losses. Nevertheless, thanks to the positive effect of high interest rates on net interest margin, we expect record earnings-per-share of about $15.50 this year. PNC has exceeded the analysts’ earnings-per-share estimates in 8 of the last 10 quarters.

PNC has raised its dividend for 12 consecutive years. It froze its dividend for 8 consecutive quarters due to the pandemic, but it has resumed raising its dividend thanks to its ongoing recovery. Thanks to a healthy payout ratio of 39%, the dividend should be considered safe. Shares currently yield 4.9%.

U.S. Bancorp (USB)

U.S. Bancorp is the fifth-largest bank by assets in the U.S. It competes mostly in traditional banking activities, but also offers wealth management, payment, and investment services. The company reported strong fourth-quarter results. Adjusted earnings-per-share were $1.20, which was ahead of estimates by six cents. Revenue increased 12% to $6.37 billion.

For the full year, earnings were driven by strong net interest income, growing net interest margin from higher interest rates, and strong operating leverage. U.S. Bancorp completed its acquisition of MUFG Union Bank in December, and said it would add 8% to 9% to earnings-per-share for 2023. Net interest margin is expected to rise between 5 and 10 basis points in 2023 from 2022’s level of 3.01%. Average earning assets are expected to grow from 2022’s level of $573 billion to ~$615 billion.

Provisions for credit losses were $1.19 billion in Q4, including $662 million that were taken on the MUFG acquisition, and the loan growth associated with it. Adjusted noninterest income was $2.44 billion in Q4, down from $2.53 billion in the year-ago period.

U.S. Bancorp’s payout ratio is well below 50% of earnings in the coming years, and back in line with historical norms. U.S. Bancorp’s dividend appears safe, and we see no risk of a cut at this point. We think U.S. Bancorp will continue to produce mid-single digit dividend increases. Shares currently yield 5.5%.

U.S. Bancorp’s competitive advantage is in its stellar operating history and world-class management team. It operates as a regional bank, but on a massive scale, and as a result, it has been stronger through recessions than its larger peers.

Community Trust Bancorp (CTBI)

Community Trust Bancorp is a relatively small regional bank with 84 branch locations in 35 counties in Kentucky, Tennessee, and West Virginia. It is Kentucky’s second-largest bank holding company, with a $5.5 billion balance sheet. The stock has a low market capitalization of $680 million but the company has raised its dividend for 42 consecutive years.

In mid-January, Community Trust Bancorp reported (1/18/23) financial results for the fourth quarter of fiscal 2022. Its non-interest income dipped -8% due to lower fees but its net interest income grew 9.6% thanks to loan growth and higher interest rates, which enhanced net interest margin from 3.2% to 3.5%. As a result, the bank grew its earnings-per-share 17%, from $1.08 to $1.26, and exceeded the analyst’s consensus by $0.03.

Community Trust Bancorp has grown its earnings-per-share at a 6.4% average annual rate over the last decade and at a 9.5% average annual rate over the last five years. The economy has recovered from the pandemic and the Fed has raised interest rates aggressively in recent quarters. Higher interest rates have enhanced the net interest margin of the bank. We expect 2% annual EPS growth over the next five years.

The key competitive advantage of Community Trust Bancorp is its disciplined and conservative management. The stock has a 2023 expected dividend payout ratio below 40%, which indicates a safe dividend. Shares currently yield 4.6%.
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Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.

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BobCiura
The collapse of Silicon Valley Bank on March 10th has sent shockwaves through the banking system, and in particular regional banks. However, there are still attractive regional banks with dividend yields above 4%, and strong business models.
bank dividend stocks, pnc, u.s. bancorp, community trust
832
2023-33-24
Friday, 24 March 2023 02:33 PM
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