Janney says beat Treasury yields with dividend-paying bank stocks
Investors hoping to capture steady returns and capital appreciation potential may want to turn to regional banks—some of which offer dividend yields of more than 4%, according to investment bank Janney Montgomery Scott. The Federal Reserve is expected to cut interest rates at the end of its September 17-18 policy meeting this month. That means investors who have made big gains in short-term Treasuries, high-yield savings accounts, and money market funds will likely see their interest income decline. In fact, financial institutions have already cut the interest rates they pay on certificates of deposit: Sallie Mae cut the interest rates on its 1-year and 2-year CDs by 15 basis points each, bringing the annual percentage yields on those instruments to 4.8% and 4.05%, respectively, Wells Fargo found. A team of analysts at Janney, led by Timothy Coffey, has compiled a list of regional bank stocks with dividend yields that outperform most Treasuries. To put things in context, the 3-year Treasury yields about 3.75%. “It’s perhaps no surprise that banks in this group have been paying regular dividends for years,” Coffey wrote in a note last week. “And, despite pressure on net interest margins from slowing lending demand and faster-rising funding costs, many have increased their dividends every year since 2021.” Net interest margins measure the difference between the interest income a bank generates from loans and the amount it pays out to savers. Investors should know that banks — like any dividend-paying company — can always reduce these payments to shareholders if their finances get tough. Moreover, a high dividend yield can signal that a company’s stock price is headed for a downturn. Here are the bank stocks Janney highlighted in his report. Regions Financial has been a hit. The stock is up nearly 20% through 2024 and has a dividend yield of 4.3%. Wall Street is largely mixed on the Birmingham, Ala., bank, with 16 of the 27 analysts covering the name rating it a hold, according to LSEG. Analysts from Piper Sandler recently met with management at Regions, noting that “While the macro backdrop reflects a slowing economy and customers remain cautious, management remains confident in RF’s ability to navigate the uncertainty.” Regions executives also pointed to an “improvement in [net interest income] “The trajectory and fee story are good,” Piper analyst R. Scott Siefers wrote. He has a neutral rating on Regions and a price target of $23, suggesting a downside of nearly 2% to the stock’s closing price on Friday. Regions raised its quarterly dividend by more than 4% in mid-July. KeyCorp is also on Janney’s list. Shares of the Cleveland-based bank have gained nearly 17% this year, and the stock offers a dividend yield of 4.9%. Wall Street has a generally favorable view of KeyCorp, with about 60% of analysts rating KeyCorp a buy or strong buy, according to LSEG. Last month, the Bank of Nova Scotia agreed to make a strategic minority investment in KeyCorp worth about $2.8 billion to take a roughly 14.9% stake. That initial investment was completed on Friday, with the Canadian bank buying $800 million KeyCorp common stock. “This is a great deal for KEY because it ticks a number of boxes,” DA Davidson analyst Peter Winter said in an Aug. 12 report. He noted that the deal would be low-single-digit earnings accretive by 2025. Winter added that KeyCorp would use about half of the investment to reposition its equity portfolio and pull earnings forward, which would generate about $400 million in additional net interest income in the first year. Other names that made Janney’s list of dividend-paying regional banks include Huntington Bancshares, which is up 16% by 2024 and pays a dividend yield of 4.2%, and Truist Financial, which is up about 20% this year and offers a dividend yield of 4.7%.
