Profit From Banks Operating Far From the Nonsense of Wall Street
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Not everybody wants to live in Manhattan; and not all the financial genius in the universe is located on Wall Street. There are many banks headquartered across the country that can provide investors with the profitable exposure to the financial sector that is needed for a well-balanced portfolio. Fifth Third Bancorp (NASDAQ: FITB), BB&T (NYSE: BBT), Well Fargo (NYSE: WFC), and US Bancorp (NYSE: USB) all present the opportunity for shareholders to gain from well-run institutions with solid dividend incomes that operate far away from where Samantha, Carey, Miranda and Charlotte meet for cosmos in lower Manhattan, awaiting the arrival of Mr. Big so that he can pick up the tab as each has maxed out on their credit cards.
That is a fitting metaphor, indeed, for the performance of Wall Street financial institutions such as Merrill Lynch, Goldman Sachs, Bear Sterns, Lehman Brothers and many others before, during and after The Great Recession.
About 560 miles south of Manhattan, BB&T is headquartered in Winston-Salem, North Carolina. Bank of America, (NYSE: BAC), the country's largest private financial institution, is also based in North Carolina. That is pretty much where the comparison ends. BB&T was able to avoid much of the carnage that beset its sister institution located farther south in the Tar Heel state in Charlotte after Bank of America acquired the Wall Street investment firm of Merrill Lynch and Countrywide Credit, the derivative-clogged mortgage giant that at one time was the nation's biggest.
As a result of maintaining this conservative, down home business approach, BB&T is much more profitable than Bank of America and pays a much, much higher dividend at 2.57%. The average dividend yield for a member of the Standard & Poor's 500 Index is around 2%; and Bank of America has one of just 0.49%. With a stronger balance sheet, BB&T has also been able to take business away from Bank of America, too.
Wells Fargo and US Bancorp are two of the biggest holdings for Warren Buffett in the portfolio of Berkshire Hathaway. Wells Fargo is based in San Francisco; and US Bancorp operates from its home office in Minneapolis. Unlike so many financial institutions from the borough of Manhattan in New York City, these two banks emerged from The Great Recession with much better reputations due to how solid each's practices turned out to be when adverse economic conditions exposed the weakness of so many others.
US Bancorp is very well managed as manifested by its high profit margin of 26.76%. Earnings-per-share growth this year is up more than 40%. The dividend yield is 2.36% with a payout ratio of just 23.55%. With such ample cash flow there is plenty of capital to raise the dividend or initiate stock repurchase programs to reward shareholders well into the future.
At Wells Fargo, the profit margin is high too at 20.88%. Wells Fargo rewards its shareholders with dividend income at the rate of 2.59%. For the year, earnings-per-share growth is higher at Wells Fargo by 27.71%.
Another highly profitable bank with earnings rising, Fifth Third Bancorp was founded and still remains in Cincinnati. With earnings-per-share growth increasing by 84.11% this year and a profit margin of 24.10%, Fifth Third Bancorp is able to pay its shareholders a dividend of 2.16%. Look for dividend growth from this lender as the payout ratio is very low at just 20.06%.
WFC Profit Margin data by YCharts
These banks all avoided the complex mortgage derivatives and over-leverage that befell so many money center financial institutions. While each certainly suffered from the impact of The Great Recession, as manifested by the solid profit margins and substantial earnings-per-share growth, all have recovered. Many others are still tottering from the meltdown on Wall Street in late 2008 and early 2009, by contrast.
In 2011, the financial industry was the worst performing group in the stock market. This year has witnessed a recovery in the sector. Leading this rebound are, quite naturally, the best managed financial institutions: BB&T is up 25.95% for 2012; Wells Fargo has risen 25.66% for the same period; trading higher by 23.62% is US Bancorp for the same time segment; and Fifth Third Bancorp is up 17.82% since January 1.
The United States economy is still weak, but these financial institutions are very strong. Each emerged from The Great Recession in a better position than it entered, able to seize business away from weaker competitors. All are positioned well to continue expanding responsibly and rewarding shareholders, no matter the overall economic conditions of the country or on Wall Street.
Fool blogger Jonathan Yates does not own any of the stocks mentioned in this article. The Motley Fool owns shares of Bank of America, Fifth Third Bancorp, and Wells Fargo & Company and has the following options: short OCT 2012 $33.00 puts on Wells Fargo & Company and short OCT 2012 $36.00 calls on Wells Fargo & Company. Motley Fool newsletter services recommend Wells Fargo & Company. 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.If you have questions about this post or the Fool’s blog network, click here for information.
