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Goldman Sachs Says Buy These 5 Regional Banks With Huge Dividends Before It Is Too Late
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It always seems to happen when something blows up on Wall Street or in the financial world. Stock traders, especially from the quantitative and hedge fund variety, tend to use the old “shoot first and ask questions later” strategy. That is what happened when we had some of the biggest bank defaults and failures ever back in March, when Silicon Valley Bank, Signature Bank and First Republic all went down in flames.
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While the overall stress on the financial system has calmed, there are still some worries that a contagion is still possible. The good news for the mega-cap money-center banks is that rules and regulations put in after the global financial crisis back in 2008 have kept them in good shape, and many of the top regional banks that were hammered after the failures are also in solid financial condition.
Goldman Sachs recently released an exhaustive and comprehensive report on the regional banks, touching on every aspect the banks have dealt with from deposits to loan growth, the shift out of non-interest-bearing deposits and the potential pressure on non-interest-income and additional metrics.
We screened the list of stocks in the Goldman Sachs report, looking for Buy-rated regional banks that pay solid dividends. Five stocks made the cut, though it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Ally Financial
The bank with no buildings still could be poised to have a strong 2023. Ally Financial Inc. (NYSE: ALLY) is a digital financial services company that provides various digital financial products and services to consumer, commercial and corporate customers primarily in the United States and Canada. It was formerly known as GMAC and changed its name in May 2010.
Its Automotive Finance Operations segment offers automotive financing services, including providing retail installment sales contracts, loans and operating leases, term loans to dealers, financing dealer floor plans and other lines of credit to dealers, warehouse lines to automotive retailers and fleet financing. It also provides financing services to companies and municipalities for the purchase or lease of vehicles and vehicle-remarketing services.
The Insurance Operations segment offers consumer finance protection and insurance products through the automotive dealer channel and commercial insurance products directly to dealers. This segment provides vehicle service and maintenance contracts and guaranteed asset protection products, and it underwrites commercial insurance coverages, which primarily insure dealers’ vehicle inventory.
The Mortgage Finance Operations segment manages consumer mortgage loan portfolio that includes bulk purchases of jumbo and low-to-moderate income mortgage loans originated by third parties, as well as direct-to-consumer mortgage offerings.
The Corporate Finance Operations segment provides senior secured leveraged cash flow and asset-based loans to middle market companies, leveraged loans and commercial real estate products to serve companies in the health care industry. The company also offers commercial banking products and services. In addition, it provides securities brokerage and investment advisory services.
Investors receive a 4.60% dividend. Goldman Sachs has a $35 target price on Ally Financial stock. The consensus target is $32.35. The stock closed on Thursday at $27.28, which was up over 4% on the day, as some big insider buying provided a tailwind.
Citizens Financial
Many feel that this top regional player could be a takeover target. Citizens Financial Group Inc. (NYSE: CFG) operates approximately 2,700 ATMs and 1,000 branches in 11 states in the New England, Mid-Atlantic and Midwest regions, as well as through online, telephone and mobile banking services, and it maintains approximately 130 retail and commercial non-branch offices.
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Citizens Financial operates in two segments. The Consumer Banking segment offers traditional banking products and services, including checking and savings accounts, home and education loans, credit cards, business loans, mortgage and home equity lending and unsecured product finance and personal loans, as well as wealth management and investment services to retail customers and small businesses. This segment also provides indirect auto finance for new and used vehicles through auto dealerships.
The Commercial Banking segment offers various financial products and solutions, such as loans and leasing, trade finance, deposit and treasury management, cash management, and foreign exchange and interest rate risk management solutions. It also provides loan syndications, corporate finance, merger and acquisition, and debt and equity capital markets capabilities.
Shareholders receive a 6.37% dividend. Goldman Sachs has set its target price at $38, and the consensus target is $36.26. Citizens Financial Group stock closed at $26.34 on Wednesday.
KeyCorp
Shares of this top regional player are quite 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.
KeyCorp 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.
KeyCorp stock comes with an 8.55% dividend. The Goldman Sachs price target is $16, while the consensus target is $15.88. Shares closed on Wednesday at $10.05.
Regions Financial
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 three segments.
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.
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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. It also provides investment and insurance products, low-income housing tax credit corporate fund syndication services and other specialty financing services.
The dividend yield here is 4.74%. Regions Financial stock has a $24 price target at Goldman Sachs. The consensus target is $22.13, and Thursday’s close was at $16.99.
24/7 Wall St.Truist Financial
This company was created through a merger of SunTrust Bank and BB&T in 2019. Truist Financial Corp. (NYSE: TFC) provides banking and trust services in the southeastern and mid-Atlantic United States. Its deposit products include non-interest-bearing checking, interest-bearing checking, savings and money market deposit accounts, as well as certificates of deposit and individual retirement accounts.
The company also provides funding; asset management; automobile lending; bankcard lending; consumer finance; home equity and mortgage lending; insurance, such as property and casualty, life, health, employee benefits, workers compensation and professional liability, surety coverage, title, and other insurance products; investment brokerage; mobile/online banking; and payment, lease financing, small business lending, and wealth management/private banking services.
In addition, Truist offers association, capital market, institutional trust, insurance premium and commercial finance, international banking, leasing, merchant, commercial deposit and treasury, government finance, commercial middle market lending, small business and student lending, floor plan and commercial mortgage lending, mortgage warehouse lending, private equity investment, real estate lending and supply chain financing services. It provides corporate and investment banking, retail and wholesale brokerage, securities underwriting and investment advisory services.
Investors receive a 7.19% dividend. The Goldman Sachs price target is $39, but Truist Financial stock has a $41.02 consensus target. The stock closed over 3% higher on Thursday at $29.84.
Note that it is possible some of these banks have to trim their dividends. Yet, because they have exploded so high due to panic selling, even with a cut, they will still be well above those of most companies. With earnings for the quarter largely complete, and Wall Street having a couple of months to reassess some of these top regional players, the risk-reward appears far better than it was in March.
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