While regional banks used to be our best bet when it came to dividends, the housing bust changed the entire landscape, with U.S. banks generally paying out nominal dividends as they struggle to achieve a certain degree of stability.
In spite of their recent slide, financial stocks have performed well this year, with financials in the S&P 500 Index (INDEX: ^GSPC) up 11%. The recent round of stress tests also seems to have worked in their favor: Banks have been given the impetus to boost their dividends and authorize buybacks as they look to increase shareholders' return. The latest round of earnings has also shown that the situation for banks is easing up, as most of them were able to record an improvement in their credit quality.
Keeping this overall situation in perspective, let's take a closer look at two regional banks that have displayed growth potential, strong balance sheets, and a proven ability to increase their returns.
US Bancorp (NYS: USB) This Midwest regional bank recently posted a massive 28% increase in its first-quarter profits, thanks to a rise in its top line and falling credit losses. Some credit certainly goes to CEO Richard Davis, as the bank has yet to record a single quarterly loss under his able leadership.
The bank seems to have done well on all fronts during the quarter. Its loan portfolio has grown, and top-line growth has been decent. That, coupled with its strong capital position, makes US Bancorp seem a rock-solid bank. Following the recent round of stress tests, the bank raised its annual dividend by a whopping 56% to $0.78 a share. This translates into a dividend yield of 2.4%, higher than the S&P 500's financial-sector yield of 2%, as well as the broader S&P 500's dividend yield of 2.2%.
PNC Financial (NYS: PNC)
Although the bottom line shrank by 2.5% for the country's sixth-largest lender, this was mainly a result of acquisition-related expenses. On the other hand, PNC's acquisition of the U.S. retail banking operations of Royal Bank of Canada (NYS: RY) helped the bank grow its top line, as well as its loan portfolio. The buyout added $15 billion to PNC's loan books. The bank had a pretty strong quarter overall, which saw an improvement in credit quality.
PNC looks ready for the rest of the year. It also raised its quarterly cash dividend by 14% to $0.40 a share and authorized a $250 million buyback program at the same time. PNC's dividend yield is also 2.4%.
Regional banks appear to be making a comeback. They look increasingly attractive from an income standpoint, and over the next several years we should expect further improvement as the economy strengthens. These two regional players are both offering reasonable dividend yields and may just be the stocks you can bank on.
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At the time thisarticle was published Fool contributor Shubh Datta doesn't own any shares in the companies mentioned above. The Motley Fool owns shares of PNC Financial Services Group. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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