In this article, we will analyze the list of some of the best dividend stocks from the banking sector.
Bank stocks are having a moment. The S&P Banks Select Industry Index, which tracks the performance of companies belonging to different banking subsectors, surged by almost 17% in July, while the tech-focused Nasdaq fell by 1.6%. This shift is contributing to the broader market rally that has been ongoing for the past year or so. Share prices of major banks have reached all-time highs, allowing the finance sector to sometimes surpass the tech sector in driving the broader market higher on certain days. This spike in bank stocks came as a surprise to investors and analysts, considering that financial stocks have lagged behind the rest of the market for years. Just a year ago, the banking sector was in turmoil due to the collapse of Silicon Valley Bank, First Republic, and other major institutions. But as they say, the market moves in mysterious ways.
The current strength of banking stocks suggests that their recent surge is likely to be sustained rather than short-lived. Recently, the Federal Reserve Board conducted its annual stress test, a tool designed to verify that major banks can support the economy during economic downturns. The results indicated that, although large banks might face larger losses compared to last year’s test, they are well-prepared to withstand a severe recession and remain above the required capital thresholds. In addition, analysts are also presenting a positive outlook on the sector. One key reason for this bullish outlook is that recent earnings reports suggest banks are nearing the end of a slowdown in net interest income. Moreover, good news about inflation has led investors to shift their focus from tech stocks to companies, like banks, that could benefit from Federal Reserve rate cuts. Some of the largest banks, such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. have both reached all-time highs this year so far.
The enthusiasm for the sector is backed by evidence, as recent earnings reports from several banks reveal positive results for the second quarter of 2024. Morgan Stanley analyst Betsy Graseck believes that the shift in net interest income from a “headwind to a tailwind” will be a major factor driving positive operating leverage in the latter half of the year and into 2025.
Another reason for this strong outlook, according to Dave Donabedian, the Chief Investment Officer of CIBC’s private wealth division, is that “sticky money” is entering the sector for the first time in a long while. He attributed this trend to investors seeking diversification away from tech stocks and the attractive dividends offered by many bank stocks. The dividend factor is indeed accurate. Banking stocks have continued to offer generous dividends to shareholders. In fact, in 2023, the banking sector set records for dividend payouts and was responsible for half of the global dividend growth, thanks to the higher interest rates that allowed many banks to boost their profit margins. In this article, we will take a look at some of the best dividend stocks from the banking sector.
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Our Methodology:
For this list, we scanned Insider Monkey’s database of 920 hedge funds as of Q1 2024 and identified bank stocks that pay dividends. From that list, we picked 10 stocks that have dividend yields above 2%, as of August 4. The stocks are ranked in ascending order of hedge funds’ sentiment towards them. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
10. Ally Financial Inc. (NYSE:ALLY)
Number of Hedge Fund Holders: 47
Dividend Yield as of August 4: 2.95%
Ally Financial Inc. (NYSE:ALLY) is a Michigan-based bank holding company that provides banking, investing, home loans, and auto finance services. The stock has gained 39% in the past 12 months, significantly benefitting from the rise in the banking sector. What sets the company apart from its peers is its all-digital approach, which means that it operates without a widespread network of physical branches. In an era where the internet, technology, and data are increasingly vital, this lack of physical presence could actually be an advantage, particularly in attracting new deposits. In the second quarter of 2024, the banking reported 3.2 million deposit customers, growing from 1.2 million in 2016, with 96% customer retention. The company also posted $13 billion of deposit balances held by investing customers.
While Ally Financial Inc. (NYSE:ALLY) is lauded for its business model, analysts are worried about its heavy dependence on the automotive industry. Originally, the bank focused on underwriting auto loans. When interest rates are low and the used car market is strong, the bank benefits greatly. However, if the automotive sector’s profitability declines, the company’s earnings could be negatively affected. That said, there are other factors to take into account when investing in this bank stock, with dividends being one of them.
Ally Financial Inc. (NYSE:ALLY), one of the best dividend stocks, has been making regular dividend payments to shareholders since 2016. The company currently offers a quarterly dividend of $0.30 per share and has a dividend yield of 2.95%, as recorded on August 4.
At the end of Q1 2024, 47 hedge funds tracked by Insider Monkey held stakes in Ally Financial Inc. (NYSE:ALLY), which remained unchanged from the previous quarter. These stakes have a total value of over $2.5 billion. With 29 million shares, Berkshire Hathaway was the company’s leading stakeholder in Q1.
9. The Bank of New York Mellon Corporation (NYSE:BK)
Number of Hedge Fund Holders: 52
Dividend Yield as of August 4: 2.98%
The Bank of New York Mellon Corporation (NYSE:BK) is an American investment banking company that provides asset and wealth management services. It is one of the biggest financial services companies, overseeing $50 trillion in assets under management. The company recently announced its second quarter of 2024 earnings and posted revenue of $4.6 billion, which showed a 2% growth from the same period last year. Revenue increased due to higher investment services fees and a significant boost from foreign exchange sales. The company also reported a 3% YoY growth in its average total deposits at $295 billion. After posting solid earnings, the stock touched its all-time high of $65.7 per share on July 15. Since the start of 2024, the stock has surged by over 20%.
Since its founding in 1787, The Bank of New York Mellon Corporation (NYSE:BK) has undergone significant evolution. The direction changed notably with Robert Vince taking over as CEO in March 2022. Vince has introduced new leadership and emphasized growth in areas such as real-time payments and artificial intelligence, while also enhancing efficiency. Recently, the bank announced that it is forming strategic partnerships to strengthen its investment portfolio. One such collaboration is with BlackRock Inc. to revamp AIA Group Ltd.’s investment platform. Vince highlighted this as an example of how BNY is integrating various sectors of its business to enhance client experience and operational efficiency.
On July 12, The Bank of New York Mellon Corporation (NYSE:BK) declared a 12% hike in its quarterly dividend to $0.47 per share. This marked the company’s 14th consecutive year of dividend growth, which makes BK one of the best dividend stocks in the banking sector. In the second quarter of 2024, the company returned $322 million to shareholders through dividends. The stock’s dividend yield of August 4 came in at 2.98%.
The number of hedge funds tracked by Insider Monkey owning stakes in The Bank of New York Mellon Corporation (NYSE:BK) jumped to 52 in Q1 2024, from 42 in the previous quarter. These stakes are worth over $1.02 billion in total. Among these hedge funds, First Eagle Investment Management was the company’s leading stakeholder in Q1.
8. Truist Financial Corporation (NYSE:TFC)
Number of Hedge Fund Holders: 57
Dividend Yield as of August 4: 4.94%
An American bank holding company, Truist Financial Corporation (NYSE:TFC) ranks eighth on our list of the best dividend stocks in the banking sector. In the second quarter, the company maintained strong momentum in its core banking operations, as demonstrated by robust YoY growth in investment banking and trading revenue, along with ongoing expense discipline. Client deposits have stabilized, with average deposits decreasing slightly by 0.3% YoY due to declines in non-interest bearing and time deposits. Its asset quality metrics are in line with expectations. Although loan demand remains subdued, there is optimism due to improved client interactions and increased capacity to meet their needs.
In addition to reporting strong earnings, Truist Financial Corporation (NYSE:TFC) successfully finalized the sale of its remaining interest in Truist Insurance Holdings. This, combined with organic capital generation, raised its capital ratio to 11.6% and increased tangible book value per share by 34%. The company’s current capital position and strategy offer substantial capacity to serve clients and stakeholders, sustain a strong dividend for shareholders, and fulfill its mission to inspire and enhance lives and communities.
Truist Financial Corporation (NYSE:TFC) can be a reliable investment for income investors as the company’s cash position is strong. As of the most recent quarter, the company has over $48 billion available in cash. With a payout ratio exceeding 60%, the bank’s figure is relatively high. However, since banks are permitted to maintain such elevated payout ratios, this should not raise significant concerns for investors. Moreover, the company has paid uninterrupted dividends to shareholders since 1997. It currently offers a quarterly dividend of $0.52 per share and has a dividend yield of 4.94%, as of August 4.
Truist Financial Corporation (NYSE:TFC) was a part of 57 hedge fund portfolios at the end of Q1 2024, down from 59 in the previous quarter, as per Insider Monkey’s database. The stakes held by these hedge funds have a collective value of more than $1.6 billion.
7. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 59
Dividend Yield as of August 4: 3.86%
Morgan Stanley (NYSE:MS) is an American multinational investment banking company that offers a wide range of financial services to its consumers. The stock has risen more than 27%, increasing from approximately $70 per share in early January 2021 to about $96 per share currently. Despite this recent gain, its overall performance has been quite variable over the past three years. A significant factor contributing to this volatility is the company’s difficulties with its Wealth Management division, which has led to its shares experiencing their largest decline in over three years. Since the start of 2024, the stock just managed to return a little over 2%, compared with a 12.7% return for the broader market.
The Wealth Management segment hasn’t always been slow. In fact, it thrived under James Gorman, its former CEO, bringing in steady revenue through fees during market fluctuations. Gorman aimed to manage $10 trillion in client assets, with the division holding $7.2 trillion as of the second quarter of 2024. Despite a slowdown in net asset inflows, Morgan Stanley (NYSE:MS)’s executives reported that the wealth unit is growing within the bank’s anticipated range of 5% to 7% per year. Although the bank is not looking at acquisitions in the immediate future, it might explore opportunities in the next two to four years. Its Wealth Management segment brought in roughly $6.8 billion in revenues, growing from $6.6 billion in the same period last year. The company generated over $15 billion in revenues in Q2 2024, up from $13.4 billion in the prior year period.
Recently, Morgan Stanley (NYSE:MS) hiked its quarterly dividend by 8.8% after passing the Fed’s stress test. The company would now offer a quarterly dividend of $0.925 per share for a dividend yield of 3.86%, as of August 4. The company has not only maintained regular dividend payments to shareholders but has also significantly increased its payouts over time. In the past five years, it has raised its payouts at an annual average rate of 22.6%, which makes MS one of the best dividend stocks in the banking sector. In the second quarter of 2024, the bank returned $134 million to shareholders through dividends.
As of the end of Q2 2024, 59 hedge funds in Insider Monkey’s database held investments in Morgan Stanley (NYSE:MS), up from 56 in the previous quarter. These stakes have a total value of over $3 billion. With over 20.7 million shares, Fisher Asset Management was the company’s leading stakeholder in Q1.
6. Discover Financial Services (NYSE:DFS)
Number of Hedge Fund Holders: 71
Dividend Yield as of August 4: 2.17%
Discover Financial Services (NYSE:DFS) is an American digital banking and payment services company that is also one of the largest card issuers in the US. Earlier this year, Capital One revealed its plan to acquire Discover in a $35.3 billion all-stock deal. Although the acquisition could affect consumers in the future, the deal is not expected to be finalized until later this year or early 2025. Currently, the companies are seeking approval from regulators and shareholders, and the deal is already drawing attention from policymakers across the political spectrum. DFS is up by nearly 15% since the start of 2024, outperforming the broader market that has delivered a 12.7% return this year so far.
Discover Financial Services (NYSE:DFS) reported strong operating performance in the second quarter of 2024, which is mainly shown by its loan growth, margin expansion, and higher non-interest revenue. The company’s total loans in the quarter amounted to over $127.6 billion, up from $118 billion in the same period last year. Its revenue for the quarter came in at $4.5 billion, showing a 17% growth from the prior-year period.
Discover Financial Services (NYSE:DFS) earnings were robust, yet analysts are focusing on the potential merger. Financial experts believe that the merger could be advantageous for both Discover and Capital One as it would increase the competition in the payment processing sector, which is currently dominated by Visa and MasterCard. This heightened competition could lead to better rewards and incentives for consumers, as issuers would need to offer more attractive credit card benefits to stand out.
On July 17, Discover Financial Services (NYSE:DFS) declared a quarterly dividend of $0.70 per share, which was in line with its previous dividend. The company has paid uninterrupted dividends to shareholders since 2007. As of August 4, the stock has a dividend yield of 2.17%.
Discover Financial Services (NYSE:DFS) remained popular among elite funds at the end of Q1 2024 as hedge fund positions in the company jumped to 71, from 43 in the preceding quarter, according to Insider Monkey’s database. The stakes held by these hedge funds have a collective value of over $3.5 billion.
5. The Goldman Sachs Group, Inc. (NYSE:GS)
Number of Hedge Fund Holders: 72
Dividend Yield as of August 4: 2.55%
The Goldman Sachs Group, Inc. (NYSE:GS) is a global investment banking company that offers securities in asset and wealth management. The stock has gained over 26.4% in the past 12 months, compared with a 14.7% return of the broader market. The bank’s stock, which was at $336 last April, hit an all-time high of $509 in July and is currently trading at approximately $451 per share. One of the main reasons for this surge is the bank’s announcement of a significant $470 million loss due to the shutdown of its Marcus personal loans, marking its initial attempt at consumer banking, which proved unsuccessful. Analysts suggest that Goldman’s swift move to halt its consumer financial ventures and refocus on its core business areas has been crucial in this turnaround.
In the second quarter of 2024, The Goldman Sachs Group, Inc. (NYSE:GS) reported strong earnings, showing growth on various fronts. Its Asset & Wealth Management segment generated nearly $3.9 billion in revenues, up 27% from the same period last year. The company’s Global Banking & Markets revenue also showed a 14% YoY growth at over $8 billion. Its ‘One Goldman Strategy’ strategy is enabling the company to present its full range of services to clients, enhancing relationships and providing support in an increasingly complex, yet improving, environment. The company’s overall revenues for the quarter came in at $12.73 billion and its net income amounted to $3.04 billion.
On July 15, The Goldman Sachs Group, Inc. (NYSE:GS) announced a quarterly dividend of $3.00 per share, having raised it by 9% after its Comprehensive Capital Analysis and Review Process. The company remained committed to its shareholder obligation, returning $4.43 billion to investors in the most recent quarter, including $929 million in dividends. With a dividend yield of 2.55% as of August 4, GS is one of the best dividend stocks in the banking sector.
Insider Monkey’s database of Q1 2024 indicated that 72 hedge funds owned stakes in The Goldman Sachs Group, Inc. (NYSE:GS), up from 69 in the previous quarter. These stakes are collectively valued at nearly $7 billion. Fisher Asset Management owned the largest stake in the company.
4. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders: 73
Dividend Yield as of August 4: 3.13%
Wells Fargo & Company (NYSE:WFC) is a California-based financial services company providing a wide range of services, including loans, mortgages, investing, and credit cards. The bank has made significant progress since the 2016 scandal that rocked the banking industry. Back then, the bank was fined $185 million by the Consumer Financial Protection Bureau (CFPB) after it was revealed that employees had fraudulently opened over two million credit card and checking accounts without customer approval. The bank continued to face misconduct allegations in 2017 and 2018, leading to increased scrutiny from various regulatory bodies.
According to analysts, as the most consumer-oriented bank—and the only one without a substantial investment banking division—Wells Fargo & Company (NYSE:WFC) may be particularly well-positioned to benefit as interest rates begin to stabilize. In the second quarter of 2024, the company reported revenue of $20.7 billion, which grew slightly by 1% from the same period last year. The company’s net income came in at $4.9 billion.
Wells Fargo & Company (NYSE:WFC) is one of the best dividend stocks from the banking sector as the company has been paying regular dividends to shareholders since 1988. On July 23, the company hiked its quarterly dividend by 14.3% to $0.40 per share. In the most recent quarter, it distributed $1.2 billion to shareholders through dividends. The stock has a dividend yield of 3.13%, as of August 4.
At the end of March 2024, 73 hedge funds owned stakes in Wells Fargo & Company (NYSE:WFC), up from 72 in the previous quarter, as per Insider Monkey’s database. These stakes have a collective value of more than $4.4 billion. With nearly 23 million shares, Harris Associates was the company’s leading stakeholder in Q1.
3. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 82
Dividend Yield as of August 4: 2.77%
Bank of America Corporation (NYSE:BAC) is an American multinational financial services and investment banking company. In a notable recent development, Berkshire Hathaway‘s top investors have sold Bank of America shares for 12 straight trading days, from July 17 to August 1. In total, they sold 90,422,124 shares, raising approximately $3.82 billion. According to analysts, the selling of BofA shares could be attributed to the bank’s sensitivity to interest rates. While BofA previously benefited significantly from rising rates, the anticipated start of a rate-cutting cycle in September might result in a faster decline in its net interest income compared to its competitors. For years, the company has been the second-largest investment in Berkshire Hathaway’s portfolio, trailing only tech giant Apple. BAC is up by over 8% year-to-date.
ClearBridge Investments highlighted the interest rate pressures on Bank of America Corporation (NYSE:BAC) in its q1 2024 investor letter. Here is what the firm has to say:
“We added several new positions during the quarter. Our largest new addition was Bank of America Corporation (NYSE:BAC), one of the world’s leading financial institutions, serving some 66 million consumer and small business clients across the U.S. as well as large corporations, financial institutions and governments globally. We believe that the interest rate pressure that Bank of America faced in early 2023 has subsided, and risks surrounding deposit outflows have abated, which should allow the company to improve its book value and capital growth as well as benefit from a rebound of capital markets activity.”
Bank of America Corporation (NYSE:BAC) is a strong dividend payer. The company has never missed a dividend in the past 26 years. In July, it announced an 8% increase in its quarterly dividend to $0.26 per share. During the second quarter of 2024, the company returned nearly $2 billion to shareholders through dividends, which makes BAC one of the best dividend stocks in the banking sector. As of August 4, the stock has a dividend yield of 2.77%.
According to Insider Monkey’s database of Q1 2024, 82 hedge funds owned stakes in Bank of America Corporation (NYSE:BAC), down from 96 in the preceding quarter. The total value of these stakes is more than $45.5 billion.
2. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Holders: 94
Dividend Yield as of August 4: 3.81%
Citigroup Inc. (NYSE:C) is a New York-based multinational investment bank and financial services company. The recent stress test once again highlighted the robustness of the company’s balance sheet. With a CET1 ratio of 13.6%, the company is raising its dividend by 6%. Significant progress has been made in simplifying operations, both strategically and organizationally. In addition, the firm is modernizing its infrastructure to enhance client service and automating processes to strengthen controls. In its recent earnings report, the company highlighted that it will persist in executing its transformation and strategy to achieve its medium-term goals and improve returns over time.
In the second quarter of 2024, Citigroup Inc. (NYSE:C) reported revenue of $20.1 billion, which showed a growth from $1.94 billion in the same period last year. The company attributed this growth to the strong performance across all businesses. The company is in the midst of restructuring, which is positively impacting its earnings. In March, it sold or closed 9 out of its 14 consumer franchises. Additionally, the company announced that its consumer business in Mexico is set for an initial public offering (IPO) by 2025.
Citigroup Inc. (NYSE:C) is a strong dividend stock, offering payouts to shareholders consistently for the past 34 years. With a low payout ratio of 34%, the company demonstrates that its future dividends are secure, with the potential to increase its payouts further. After the Fed’s stress test, the company raised its quarterly dividend by 6% in July to $0.56 per share. The stock’s dividend yield on August 4 came in at 3.81%.
Citigroup Inc. (NYSE:C) was a part of 94 hedge fund portfolios at the end of Q1 2024, growing significantly from 87 in the previous quarter, as per Insider Monkey’s database. The stakes owned by these hedge funds have a collective value of over $10.6 billion. With over 1 billion shares, Warren Buffett’s Berkshire Hathaway was the company’s leading stakeholder in Q1.
1. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 114
Dividend Yield as of August 4: 2.31%
JPMorgan Chase & Co. (NYSE:JPM) tops our list of the best dividend stocks in the banking sector. The stock has proven to be a lucrative investment, delivering a total return of over 244% over the past decade, significantly surpassing the broader market’s gain of about 167% during the same period. Alongside these strong returns, the company performed well in the latest quarter. Nonetheless, CEO Jamie Dimon remains cautious, expressing concern that inflationary pressures might persist. He believes that interest rates may need to stay high for an extended period, which could heighten the risk of the US economy not achieving a smooth transition and facing a potential recession.
Despite ongoing geopolitical tensions and inflationary pressures, JPMorgan Chase & Co. (NYSE:JPM)’s priorities have remained steady. The company continues to invest significantly in its businesses to ensure long-term growth and profitability. In addition, it upholds a strong balance sheet and is preparing the firm to handle various potential economic conditions. In the second quarter of 2024, the company reported revenue of $50.2 billion, which showed a 22% growth from the same period last year. The company also posted a 15% growth in its assets under management (AUM) to $3.7 trillion.
In its quarterly earnings, JPMorgan Chase & Co. (NYSE:JPM) announced that the broad plans to increase its dividends for the second time this year. The company also declared that it returned $3.3 billion to shareholders through dividends in Q2 2024. It pays a quarterly dividend of $1.15 per share and has a dividend yield of 2.31%, as of August 4.
JPMorgan Chase & Co. (NYSE:JPM) was a popular buy among elite funds in the first quarter of 2024, as 112 funds held stakes in the company, growing from 103 in the previous quarter, according to Insider Monkey’s database. These stakes have a consolidated value of over $8.4 billion.
While we acknowledge the potential of JPM as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than JPM but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
