Banking, finance, and taxes
Big Bank Q4 Earnings Could Be Huge: 4 Top Dividend Stocks to Buy Now
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As we have noted on multiple occasions, one of the few sectors in which companies applaud higher interest rates is the financials. When interest rates are higher, banks make more money, by taking advantage of the difference between the interest banks pay to customers and the profit spread the bank can earn by investing and writing loans.
The stock market has been on edge recently as interest rates have surged higher. While a huge increase would be dangerous for some sectors, the reality is the Federal Reserve has to get very aggressive as it waited much too long before taking action. There is a good chance the Fed starts raising rates as early as March.
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To put things in perspective, note that the benchmark one-year Treasury trading up to a 1.79% handle and the 30-year long bond at 2.07% are nothing compared to the 5% yields both bonds had in the summer of 2007.
The bottom line for investors is that the top large-cap financials likely will post some very solid numbers this week and next. So we screened our 24/7 Wall Street research database looking for bank stocks that are rated Buy. These four look very attractive and can be bought in front of the quarterly reports.
Bank of America
The company posted very solid third-quarter results and looks poised to do the same for the fourth quarter. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, corporations and governments in the United States and internationally. It operates 5,100 banking centers, 16,300 ATMs, call centers and online and mobile banking platforms.
The bank has expanded into several new U.S. markets, with scale across the country positioning it ideally to benefit from accelerating loan growth over the next two years. Moreover, unlike smaller peers, scale allows the bank to increase investment substantially over the next few years without notably jeopardizing returns, driving further market share gains.
Bank of America stock investors receive a 1.71% dividend. Barclays has a $58 price target on the shares, which is above the $50.21 consensus target and Tuesday’s closing print of $49.21. The bank is expected to report earnings Wednesday the 19th.
Citigroup
This top bank stock backed up some recently and is offering an outstanding entry point. Citigroup Inc. (NYSE: C) is a leading global diversified financial service company that provides consumers, corporations, governments a broad range of financial products and services.
Citigroup offers services such as consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management. It operates and does business in more than 160 countries and jurisdictions in North America, Latin America, Asia and elsewhere.
Trading at a still very cheap 8.4 times estimated 2022 earnings, Citigroup stock looks very reasonable in what remains a volatile stock market and in a sector that has dramatically lagged.
Investors receive a 3.04% dividend. The Credit Suisse price target is $76, while the consensus target is up at $80.14. The stock closed on Tuesday at $67.11. The company reports on Friday the 14th.
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JPMorgan
This stock trades at a reasonable 13.0 times estimated 2022 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.
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 are very positive on JPMorgan, largely because the industry titan faces a continued broad recovery in nearly every aspect of its business. It has a leading M&A advisory and capital markets product set and market share. It has a massive footprint of corporate and commercial banking customers. And it has a sizable wholesale payments business. The bank 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 versus most peers.
Investors receive a 2.39% dividend. The $193 Goldman Sachs price target for JPMorgan Chase stock compares with a $181.11 consensus target Tuesday’s close at $167.49. Look for its report on Friday the 14th.
Morgan Stanley
This is another of Wall Street’s white-glove firms, and it may be among the best buys among the banking and investment stocks. Morgan Stanley (NYSE: MS) is a global investment bank with leading positions in investment banking (M&A and equity underwriting), equity trading and wealth management, which contributes nearly 50% of firmwide revenues. The firm also has an asset management business, which adds to the lower-risk business profile the firm has pursued since the financial crisis.
Morgan Stanley recently completed its $13 billion purchase of discount brokerage E-Trade. With 5.2 million customers, E-Trade was once a revolutionary platform that “helped usher in a dramatic shift among financial services firms” and fueled the rise of indexes and exchange-traded funds, making investing vastly easier for do-it-yourself investors.
Investors receive a 2.64% dividend. UBS has set a $125 price target. The consensus target for Morgan Stanley stock is $114.68, and shares closed on Tuesday at $105.92. The company is expected to report on Wednesday the 19th.
It is always a bit riskier to buy shares in front of the numbers, and very conservative investors may want to either wait for the results or buy smaller partial positions. With some solid tailwinds for the rest of 2022, not the least of which will be rising interest rates and a continued reopening of the economy, all these stocks make sense for patient growth investors.
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