Three Banks From Three Different Banking Sectors
Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In order to best situate yourself in the market, you should have exposure to a variety of sectors. The financial sector is an area that you can diversify into quite a lot. Within this sector, there are banks from around the globe, both big and small.
I bring to you my three favorite banks that come from three pretty distinct areas of the financial sector. From the larger side of things, we have Wells Fargo (NYSE: WFC); for a little bit of non-US flavoring I have The Toronto-Dominion Bank (NYSE: TD); and for those who like to play it small, I have BB&T (NYSE: BBT) on deck.
There’s no doubting that Wells Fargo is a humongous bank. If you happen to doubt, I’d just tell you to go and check out its balance sheet. Those numbers in the assets column are actually in millions. If you’re looking at the 2012 10-K filing, you’re seeing $1.4 trillion in assets and approximately $1.3 trillion in liabilities. That’s a hefty sum no matter who you are.
Obviously, we’re not going to be buying a trillion dollar company, though. Wells Fargo happens to be worth around about $190 billion, and that’s with a P/E ratio of 10.3. A 10.3 ratio is well below the money-center bank average P/E, which sits at 30.
Wells Fargo's revenue has been on the rise over the last five years with average growth of 11% per year. In the last fiscal year, that growth was 4.2%, indicating that much of that five-year value could represent the bank coming out of the recession.
EPS has risen by around 22% per year over the last five years. Plotting the EPS on a graph actually displays a nice upward-slope; that’s something that investors should like the looks of!
When it comes to dividends, those juicy payments that Fools no doubt love, we see that Wells Fargo pays a 2.8% yield.
That dividend has been on the rise steadily over the past couple of years, and it will likely continue to climb. Wells Fargo's payout ratio sits at 28%, which means the company will be able to bolster that dividend if it sees fit.
In this instant, ‘small’ should be taken with a grain of salt. BB&T is actually quite a large bank; it’s just not on the same scale as Wells Fargo. For comparison’s sake, BB&T had around $183 billion in assets on the books at the close of 2012. It’s a lot of money, but a far cry from Wells Fargo.
BB&T is a name that those residing in the southern parts of the U.S. may know. The company operates close to 2,000 branches that are focused in states such as Florida, Tennessee, Georgia and Virginia.
Last year, those operations allowed the company to grow earnings by a rate of about 7%. EPS grew by an astonishing 52%. These numbers are bolstered by a few bad years after the financial crisis. Analysts believe that this bank is now back inline and they have a firm ‘hold’ rating on the company.
For those interested in the dividend, and who isn’t, the yield currently sits at a 3.1%. That’s a little better than what Wells Fargo is offering.
BB&T does bring with it a slightly higher dividend but I'd stick with Wells Fargo at this point. BB&T has been suffering from fragile earnings if you look back over the last decade, and I'd prefer my money to be in something that's looking solid.
Growth at BB&T is projected to be 5% per year over the next two years. Wells Fargo is expected to see growth average around 7% over the next two years. I definitely think you should go with the higher growth bank in this case.
OK, so it's not fully international, as this Canadian bank also provides services across the U.S. The firm is in this category because it's definitely one of the best banks outside of our borders.
Toronto-Dominion, or TD as it is known to customers, has assets and liabilities up in the $700-billion range. The company managed to do around $22 billion in sales last year, earning approximately $6.2 billion from those sales.
TD pays the highest dividend out of all of the banks in this article at 4.1%. That’s quite a solid dividend from this very sturdy bank.
Over the last five years, the company has managed to grow sales by an annual rate of approximately 5.5%, and grow EPS by an annual rate of 10.2%.
Projected future growth from the analysts covering the stock shows that we’ll likely be looking at 3% this year and almost 8% next year. Those are great numbers from a multi-billion dollar company like Toronto-Dominion.
With that future growth, and the high yield that this multinational bank pays out, it's definitely at the top of my buy list. The payout ratio is a tad high at 42%, which means we're unlikely to see huge dividend boosts, but we likely won't see any cuts over the next few years either.
Go with one of the bigger banks here. There may be some smaller regional money centers that I have overlooked, but I think in the grand scheme of things that both Toronto-Dominion and Wells Fargo will outperform.
Toronto-Dominion is my overall favorite, mainly because of that dividend and the consistent growth that it has been showing. I wouldn’t argue if you’d prefer to invest in Wells Fargo.
Ash Anderson has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!