The financial sector had a strong year in 2024, with substantial returns for investors and significantly outperforming the broader market. The industry experienced a post-election surge that propelled its growth throughout the year. Some Wall Street analysts, including the team at Truist Securities, feel that this positive momentum will continue in 2025. They recently started coverage of U.S. banks and credit card companies and noted this in their report:
We are launching coverage of U.S. Banks and Credit Card Stocks with a positive view based on a better fundamental environment in 2025 and 2026. We view the sector as poised to leverage improving balance sheet growth, a steeper yield curve, and capital flexibility to drive 12-15% annual earnings per share growth over the next two years.
We screened the stock list, looking for Buy-rated companies with the highest dividend yields, which can boost investors’ total return potential. Here at 247 Wall St., we consistently emphasize the power of total return to our readers. This strategy can significantly boost your overall investing success. Total return is the combined increase in a stock’s value and dividends.
For example, if you buy a stock at $20 that pays a 3% dividend and rises to $22 in a year, your total return is 13%. That is 10% for the increase in stock price and 3% for the dividends paid.
Why do we cover dividend-paying financial stocks?
Dividend financial stocks provide investors with reliable streams of passive income. Passive income is characterized by its ability to generate revenue without requiring the earner’s continuous active effort, making it a desirable financial strategy for those seeking to diversify their income streams or achieve financial independence.
Ally Financial
Ally Financial was formerly known as GMAC.
The bank with no buildings posted solid third-quarter earnings, offers a solid 3.31% dividend, and Warren Buffett owns the shares. Ally Financial Inc. (NYSE: ALLY | ALLY Price Prediction), a pioneer in the digital financial services industry, offers a diverse range of innovative digital financial products and services to consumer, commercial, and corporate customers, primarily in the United States and Canada.
It operates through four segments:
- Automotive Finance Operations
- Insurance Operations
- Mortgage Finance Operations
- Corporate Finance Operations
The Automotive Finance Operations segment offers:
- Automotive financing services, including 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
- Fleet financing. It also funds companies and municipalities to purchase or lease 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 are sold directly to dealers. This segment provides vehicle service and maintenance contracts and guaranteed asset protection products and underwrites commercial insurance coverages, which primarily insure dealers’ vehicle inventory.
The Mortgage Finance Operations segment manages a consumer mortgage loan portfolio that includes bulk purchases of jumbo and low-to-moderate income mortgage loans from third parties and direct-to-consumer mortgage offerings.
The Corporate Finance Operations segment provides senior secured leveraged cash flow and asset-based loans to middle market companies and leveraged loans and commercial real estate products to serve companies in the healthcare industry.
The company also offers commercial banking products and services, securities brokerage, and investment advisory services.
The price target for the stock is posted at $42.
Bank of America
Bank of America is an American multinational investment bank and financial services company.
The company posted solid third-quarter results, pays a solid 2.26% dividend, and is looking to increase the repurchasing of its shares. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States and is a bank and financial holding company.
Its segments include:
- Consumer Banking
- Global Wealth & Investment Management (GWIM)
- Global Banking
- Global Markets
The Consumer Banking segment offers a range of credit, banking, and investment products and services to consumers and small businesses.
The GWIM segment includes two businesses:
- Merrill Wealth Management, which provides tailored solutions to meet clients’ needs through a full set of investment management, brokerage, banking and retirement products
- Bank of America Private Bank, which provides comprehensive wealth management solutions
The Global Banking segment provides a range of lending-related products and services, integrated working capital management and treasury solutions, and underwriting and advisory services.
Global Markets segment offers sales, trading, and research services to institutional clients across fixed-income, credit, currency, commodity, and equity businesses.
The Truist Securities price target objective for the shares is $52.
Citigroup
Citigroup, or Citi, is an American multinational investment bank and financial services company in New York City.
This is another top bank that Warren Buffett favors as he bought a massive $2.5 billion worth of stock in the summer of 2022. The stock pays a dependable 3.10% dividend. Citigroup Inc. (NYSE: C) is a leading global diversified financial service company that provides consumers, corporations, and governments with a broad range of financial products and services.
Citigroup offers:
- Consumer banking and credit
- Corporate and investment banking
- Securities brokerage
- Transaction services
- Wealth management services.
Citi operates and does business in more than 160 countries/ jurisdictions in North America, Latin America, Asia, Europe/Middle East and Africa (EMEA).
Trading at a reasonable 10 times estimated 2025 earnings, this company looks sensible in a volatile stock market and trades at less than one times book value.
Truist Securities has set an $85 target price.
Fifth Third Bancorp
Fifth Third Bank, the principal subsidiary of Fifth Third Bancorp, is a bank holding company headquartered in Cincinnati.
This top regional bank offers a solid 3.45% dividend and 20% upside to the Truist Securities price target. Fifth Third Bancorp (NASDAQ: FITB) is a bank holding company for Fifth Third Bank, the National Association.
It operates three main businesses:
- Commercial Banking
- Consumer and Small Business Banking
- Wealth & Asset Management
Commercial Banking offers credit intermediation, cash management, and financial services to large and middle-market businesses, government, and professional customers.
The Consumer and Small Business Banking segment includes:
- Residential mortgages
- Home equity loans and lines of credit,
- Credit cards, automobile and other indirect lending, and other consumer lending activities
Residential mortgage activities include the origination, retention, and servicing of residential mortgage loans, sales, and securitizations of those loans, as well as all associated hedging activities.
The Wealth and Asset Management segment provides a full range of solutions, including wealth planning, investment management, banking, insurance, trust, and estate services.
The target price is set at $51 at Truist Securities.
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