Despite a reasonable set of second-quarter results, many of the top money center and regional banks sold off some or just held their ground. The reality for growth investors is that many of the top U.S. banks are looking like solid value plays now, and with the seasonal slippery slope for stocks right around the corner, it may make sense to shift some capital to the more secure and dividend-paying banks.
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One key reason to be somewhat more bullish on the banks after earnings is that at some point interest rates will go higher. With inflation nudging the Federal Reserve ever closer to the end of the massive quantitative easing program as well, now may be a great time to review the top companies. The analysts at Jefferies look at the sector as a value play and noted this:

We were out with an earnings recap for the large cap banks. Earnings for the group largely saw loans stabilizing, deposits strong, fees beating and outstanding credit. In terms of outlooks, Net interest income is expected to be mixed in the third quarter with stabilizing loans, lower yields on new loans/securities, positive deposit growth and an extra day. In addition, fee outlooks expect normalization of IB/trading after another big quarter. We also moved more reserve releases into 2021 from 2022, with the consensus trend for provision estimates. still biased lower on lower losses. The core of the long-term bank thesis holds: leverage to higher rates and economic improvement, improving reported earnings per share, solid capital returns and attractive relative valuations.

Seven banks were cited as top ideas at Jefferies, but here we focus on the five with the highest dividend payouts.

Fifth Third Bancorp

This top super-regional bank stock remains incredibly cheap right now. Fifth Third Bancorp (NASDAQ: FITB) is a diversified financial services company headquartered in Cincinnati, Ohio, and the indirect parent of Fifth Third Bank, National Association, a federally chartered institution.

As of March 31, 2021, the company had $207 billion in assets and operated 1,098 full-service banking centers and 2,383 Fifth Third branded ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia, North Carolina and South Carolina. In total, Fifth Third provides its customers with access to approximately 53,000 fee-free ATMs across the United States.

Fifth Third is among the largest money managers in the Midwest and, as of March 31, 2021, had $464 billion in assets under care, of which it managed $58 billion for individuals, corporations and not-for-profit organizations through its Trust and Registered Investment Advisory businesses.

The company posted very solid results, and many on Wall Street feel that management’s guidance is very conservative.

Shareholders receive a 2.99% dividend. The Jefferies price target for Fifth Third Bancorp stock is $46. The consensus target across Wall Street is $44.04. The shares closed on Monday at $36.08.

This stock trades at a still reasonable 11.7 times estimated 2021 earnings. JPMorgan Chase & Co. (NYSE: JPM) is one of the leading global financial services firms and one of the largest banking institutions in the United States, with about $2.6 trillion in assets. The company as it is today was formed through the merger of retail bank Chase Manhattan and investment bank J.P. Morgan.
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The firm has many operating divisions, including investment and corporate banking, asset management, retail financial services, commercial banking, credit cards and financial transaction services.

Top analysts across Wall Street are very positive on the money center and investment giant and feel that this industry titan faces a broad recovery in nearly every aspect of its business:

1. Leading M&A advisory and capital markets product set and market share
2. Massive footprint of corporate and commercial banking customers
3. Sizable wholesale payments businesses

The company has proven that it has the wherewithal to invest continually in people, products and platforms to further its market share base, extending its competitive advantage compared with most of its peers.

The bank reported second-quarter results that exceeded analysts’ expectations as it released money set aside for loan losses. The company said the improving U.S. economic outlook drove its decision to release the money, which came mostly from retail credit-card and mortgage reserves.

JPMorgan Chase stock investors receive a 2.38% dividend. Jefferies has a $177 price target, well above the consensus price target of $167.23. The shares closed at $151.17 on Monday.

KeyCorp

This is another top regional player that is very cheap at current levels for investors looking at financials. KeyCorp (NYSE: KEY) operates as the bank holding company for KeyBank National Association, which provides deposit, lending, cash management and investment services to individuals, small and medium-sized businesses.

The company also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets banner.

The stock modestly has outperformed its peers after posting solid second-quarter results with forward guidance relatively unchanged. The bank also successfully rolled out Laurel Road for Doctors, its national digital bank, adding 2,500 new clients.

Investors receive a 3.79% dividend. The $24 Jefferies target price compares with a $23.15 consensus target. KeyCorp stock ended Monday at $19.54 a share.

This stock does a ton of business in the fast-growing southern and southeastern parts of the country. Regions Financial Corp. (NYSE: RF) provides banking and bank-related services to individual and corporate customers. It operates through the following three segments.
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The Corporate Bank segment offers commercial banking services, such as commercial and industrial, commercial real estate and investor real estate lending; equipment lease financing; deposit products; and securities underwriting and placement, loan syndication and placement, foreign exchange, derivatives, merger and acquisition, and other advisory services. It serves corporate, middle market and commercial real estate developers and investors.

The Consumer Bank segment provides consumer banking products and services related to residential first mortgages, home equity lines and loans, branch small business and indirect loans, consumer credit cards and other consumer loans, as well as deposits.

The Wealth Management segment offers credit-related products and retirement and savings solutions, as well as trust and investment management, asset management and estate planning services to individuals, businesses, governmental institutions and nonprofit entities.

As of February 25, 2021, it operated 1,300 banking offices and 2,000 automated teller machines across the South, Midwest and Texas. Regions Financial was founded in 1970 and is headquartered in Birmingham, Alabama.

Second-quarter earnings exceeded the consensus estimates, primarily due to lower credit costs. Management maintained that the 2021 outlook remains largely unchanged. Many on Wall Street feel the bank is positioned to benefit from economic rebound.

Investors receive a 3.56% dividend. Jefferies has set a $24 price target, while the consensus target is $23.50. The last trade for Monday was reported at $19.11 a share.

Wells Fargo

This large-cap bank is perhaps the best value play for 2021, and it reported solid second-quarter results. Wells Fargo & Co. (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.9 trillion in assets.

The company provides banking, insurance, investments, mortgage and consumer and commercial finance through 8,700 locations, 12,800 ATMs, the Internet and mobile banking. It also has offices in 36 countries to support customers who conduct business in the global economy. Wells Fargo serves one in three households in the United States.

Not only did the company post solid results, but it doubled its dividend, which now represents a 1.75% yield for shareholders.

The Jefferies price target for the money center giant is $52. The consensus target is just $49.39, and Wells Fargo stock closed most recently at $45.79 per share.

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These five top banks to look at now are really value plays when compared to the very overbought and pricey stock market as a whole. With earnings out of the way, investors can feel good about adding positions in any of these top companies.

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