Regional bank stocks may not get all investors’ blood boiling. But they’re definitely worth a look.
After all, it’s a group that outperformed the S&P 500 last year advancing 36%—and down a more modest 10% year-to-date, is doing the same in 2022. Both figures are based on the iShares Dow Jones U.S. Regional Bank ETF.
Having exposure to small- and mid-sized regional banks may suit a portfolio well over the next several years. The biggest reason is rising interest rates which allow banks to generate more revenue from loans and thereby stimulate growth. As the domestic economic recovery from Covid-19 unfolds, personal and commercial lending volumes are expected to increase putting many regional banks in a better financial position.
Another reason is the above market dividends that most regional banks offer. Half of the 14 regional banks in the S&P 500 carry dividend yields of 3% or more compared to 1.3% for the broader index.
With hundreds of publicly traded banks out there, finding strong candidates can be a challenge. We’ve done some of the legwork here. These three companies have the financial strength, growth prospects, and income stability that investors can take to the bank.
Is Truist Financial Stock a Good Value?
Truist Financial Corporation (NYSE: TFC) is the result of the merger between BB&T and SunTrust Bank. As the nation’s sixth largest bank, the Charlotte-based company offers the full gamut of banking services to retail and commercial customers in addition to insurance.
Lending activity is forecast to increase on both sides of the business in the coming quarters, helping Truist build off a better than expected first-quarter performance. As the Fed moves forward with its aggressive rate hike campaign, the company’s net interest margin (NIM) should expand and drive stronger earnings.
Profitability is also expected to get a boost from the ongoing synergies derived from the late-2019 merger. Management projects it will have generated $1.6 billion in merger-related cost savings by the end of this year. The timing of the merger consummation just before the onset of the pandemic helped Truist weather the storm and should ultimately help it emerge stronger on the other side.
The stock has retreated almost 30% from its January 2022 peak presenting a glorious entry opportunity. With a 3.9% forward dividend yield, Truist has long-term value written all over it.
Is it a Good Time to Buy KeyCorp Stock?
KeyCorp (NYSE: KEY) shares are trading back under $20 but probably won’t be there for long. The Cleveland-based bank is participating in the market rebound and above-average trading volume has it within striking distance of regaining the 50-day moving average.
With a strong presence in 15 states, KeyCorp operates a balanced model with consumer and commercial banking each comprising roughly half of the total revenue. During the first-quarter report, management raised its forecasts for multiple performance metrics which suggests the outlook is bright—and the stock will have some catching up to do. Estimates for loan growth, NIM, and fee income were all upwardly revised and guidance around net charge-offs was improved.
Aside from increased lending activity and higher lending rates, Key Bank stands to generate growth from fintech investments. It recently announced the acquisition of loan forgiveness counseling specialist GradFin. This marks another step in the company’s plan to enhance its digital capabilities in niche areas.
A trailing P/E ratio of 8x and a 3.9% dividend yield make KeyCorp a tremendous value. Investors can unlock some excellent total return potential by buying here.
What Bank Stock is in Good Financial Health?
Zions Bancorporation, National Association (NASDAQ: ZION) is near the end of the alphabetical stock listing but belongs near the top of the list of compelling regional bank plays. The Utah-based company is the epitome of resilience having survived plenty of economic downturns since its founding almost 150 years ago.
Today Zions Bancorp operates a network of more than 400 traditional bank branches spread across 11 western states, including the country’s most populous states of California and Texas. Just don’t expect to see a Zions Bank branch in every state as the company operates under six additional brands, including California Bank & Trust.
Together the footprint generates steady revenue growth from retail and commercial customers. In 2023, Zions Bancorp’s revenue is expected to grow 10% year-over-year and top the $3 billion mark for the first time in the company’s rich history. Much of the revenue will come from small businesses that were introduced to the bank through PPP loans and have remained customers.
One of the most attractive attributes of the bank is its sturdy financial position. A times-interest-earned ratio north of 50 has increased significantly in recent quarters and reflects a solid ability to repay debt obligations. Meanwhile, investment grade ratings from both S&P and Moody’s support Zion’s access to more debt for growth opportunities or to stay afloat during periods of economic crisis.
This financial standing helps Zions Bancorp create shareholder value through buybacks and dividends. The company consistently beats EPS estimates on account of its organic growth and operational efficiency. A 24% pullback in the share price, 9x trailing P/E, and 2.7% dividend yield make Zions a name to bank on…perhaps even for another 150 years.